That is strong growth, particularly given the lack of growth in revenue in the two preceding quarters. But given the fact that the bottom fell out of the world economy in the December 2008 quarter, how much of this growth is due to the base effect?

To eliminate the base effect, we compared net sales and net profits of the Sensex firms with that of the preceding (September 2009) quarter. The numbers show that sequentially, net sales of these firms are estimated to grow a modest 2.35%, but net profit growth is expected to be much stronger at 10.6%. That is high growth quarter-on-quarter. Since valuations are already stretched, any disappointments with these results could lead to a sell-off.

Among the firms from which the market expects very high growth are all the auto firms and Oil and Natural Gas Corp. Ltd. Conversely, not much is expected from the telecom sector and even from information technology.

According to brokerage Motilal Oswal Securities Ltd’s preview of earnings for the third quarter of FY10, ONGC and Sterlite Industries India Ltd would be the biggest contributors to Sensex earnings growth while stocks with the highest negative contributions to Sensex earnings growth would be Tata Steel Ltd, Reliance Communications Ltd, DLF Ltd, ICICI Bank Ltd, Bharti Airtel Ltd and Sun Pharmaceutical Industries Ltd.