Rockets and anaars, not bombs, are likely to be the highlights of corporate India this Diwali. Beginning with Infosys’ results today, as the second quarter earnings season gets under way over the next three weeks, corporate profits are expected to be the prime drivers for a stock market that seems to have paused at 12,400 levels, barely 2 per cent away from a historical high. Analysts’ quarterly preview of the forthcoming numbers present a rosy picture.

Citigroup estimates that the Sensex will report a 22 per cent growth in net profits (excluding oil companies) with the strong trend of earnings growth momentum continuing. Financial intermediary Sharekhan also concurs that frontline Sensex companies could see earnings increase by a solid 22.6 per cent as the domestic demand driven story in automobiles, cement, capital goods and fast-moving consumer goods companies continues.

Following a robust June quarter 2006, when the Sensex’s growth in earnings increased by more than 25 per cent, this quarter’s performance is expected to be strong due to softening commodity prices and strong volume growth across segments. “Structurally, the economy is changing with less dependence on monsoon and agriculture. So there’s a big chance that earnings for the full year could be revised upwards, if things go well in the current season,” says Sandip Nanda, head of research, Sharekhan.

A rapidly growing domestic economy (GDP of 8.9 per cent in the first quarter) is the key driver for the robust top line growth. Besides, the impact of the recent oil and commodity price correction is unlikely to be visible in this quarter. And unlike previous quarters, the oil sector is not expected to be a drag on the profitability this quarter due to oil bonds. Says Gurunath Mudlapur, director, Atherstone Institute of Research: “There’s not much to worry about this quarter and by and large the growth across most sectors should range between moderate to good.”

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