But, how much did corporate profits fall in the downturn during the mid-1990s? We took the companies that comprised the benchmark Sensex index for each of the periods—the downturns of the late 1990s, the early 2000s and the current slowdown—and compared growth in profits after tax (PAT) during each of them. Although the composition of the Sensex are different, the exercise will give an idea of the extent these downturns had on the best and biggest companies of each period.

Growth in PAT for Sensex companies during the September quarter has been 10.76%. During the post-dotcom slowdown, PAT growth for Sensex companies decelerated to a low of 0.25% during the March 2004 quarter. We’re a long way away from that, but several research houses have already started talking of low earnings growth.

For instance, a Citi Investment research note has the title “Earnings Growth 0%—not yet". The note says earnings growth will be 12.2% for Sensex companies in FY09, but will thereafter fall sharply to 2.9% in FY10.

Motilal Oswal Securities Ltd had estimated Sensex companies would grow earnings per share by 8.6% in FY09 and 16.9% in FY10. Merrill Lynch and Co. Inc., however, has aggressively lowered its estimates and, in a recent research note pointed out that, “Our top-down view is that EPS growth for the Sensex companies in 2HFY09 will be nil (so FY09 EPS growth likely at 6%) and FY10 should also be zero to slightly negative."

EPS stands for earnings per share and 2HFY09 for the second half of the fiscal year that ends in March.

The last time Sensex PAT growth turned negative was in the September 1999 quarter, when it fell by 9.64%, compared with a year ago. At that time, growth in the Index of Industrial Production (IIP) was a mere 4.1%.

Tellingly, IIP growth during the April-September period has been just 4.9% and is likely to decelerate further. Seen from that perspective, there is a fair chance of Sensex PAT growth turning negative in the current down cycle.

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