Comparing quarterly results with those of the corresponding period of last year is all right for companies which have seasonal operations, but for other industries, quarter-on-quarter results give a clearer picture of growth. But the crucial question is not what has already happened, but what is likely to be the trend in overall corporate earnings during the next half.

That forecast seems rather bleak. For starters, kharif crop estimates have been revised radically downwards, and it now seems that agricultural growth will be a little more than 1 per cent, and that too will be mainly a statistical gain, largely because of the downward revision in the agricultural growth rate last year. This will translate into lowrural demand.

Another negative factor which was absent last year is the high rate of inflation. When the average person has to put aside Rs 60 to buy a kilo of onions, and pay through his nose for other vegetables and pulses, it is possible that he will buy less of other products. This decline in buying power will show up in corporate toplines as lower sales.

Yet another effect of higher inflation could be increased wage bills, where wages are indexed to inflation. With companies' pricing power severely curtailed owing to the slowdown, the impact will be to thin margins.

There are other reasons for a further contraction in demand. As the slowdown continues, more and more businesses will be forced to take unpleasant decisions, like lowering increments or bonuses. In some companies, workmen have been told to report for duty only two days a week. This will add to the uncertainty in people's minds, and they would tend to save for a rainy day rather than spend, affecting demand.

Furthermore, the externalsituation continues to be highly uncertain. Export demand is at a very low ebb, and with the US and European economies likely to be affected by the global downturn, prospects for exports are bleaker than ever. At the same time, deflationary pressures in the world economy will mean increased exposure to dumping.

In short, the outlook for domestic corporates is far from rosy. The silver lining is that companies have utilised the opportunity to emerge leaner and fitter, and that will stand them in good stead once the cycle turns.