Another earnings season is about to kick off and going by the estimates put out by brokerages, the fairly robust pace of earnings growth seen in the last three quarters, could moderate.

Most brokerages expect top line growth to be strong, net profit growth is expected to moderate. Margins also are likely to come under pressure.

Citigroup, expects 16% year-on-year earnings for Sensex (ex-oil) companies for the three months to June 2010, a slower clip compared with the 23% growth clocked during the March 2010 quarter.

Edelweiss is also cautious, and predicts 11% earnings growth on y-o-y basis for its coverage universe (ex-OMCs) and about an 8% decline sequentially. Both brokerages have pointed out that the first quarter of 2010 was not the best time for business.

Though, the projected numbers might appear good, they are coming off a somewhat low base. Another reason for anxiety is that both brokerages have a fairly robust full year earnings growth targets, of about 28% for the Sensex. Thus, if those expectations are to be achieved, a very strong set of numbers will be required from the subsequent quarters.

Kotak Institutional Equities, however, appears to be a little more optimistic than its peers and expects an almost 29% growth in earnings for Sensex (ex-energy) companies in the three months to June 2010.

However, there seems to be consensus amongst brokerages that top line growth will be robust. Citi has projected the most robust revenue growth at 32%, has a slightly lower number 25%. Kotak projects a rise of 18% rise for Sensex ex-oil companies.

Edelweiss expects strong top line growth to be led by discretionary sectors (automobile and retail) and real estate. Citi expects capital goods and automobile sectors as also banks to do well, while the performance of telecom and cement companies could be subdued.

Operating margins for India Inc are likely to come under pressure with brokerages expecting a 200 basis points drop in margins.

Auto companies are expected to face margin pressures because of high raw materials costs while metal producers could suffer because of the decline in base metal prices. Cement manufacturers too, could see some pressure because cement prices have corrected. Information technology firms could be impacted because of increase in salary costs and currency headwinds.

?We also see expect some pressure on margins, a mix suggesting this quarter is overall likely to be a reality check on what has so far been a strong earnings recovery,? observes Citigroup.

The brokerage, however, doesn?t see this quarter’s results as challenging the direction of earnings growth though it believes the pace may be questioned. Edelweiss warns that downgrades in earnings estimates for metal companies because of the global uncertainty could pose a threat to the earnings outlook.

The consensus estimate for the EPS of the Sensex for 2010-11 is close to Rs 1,050, which implies an earnings growth of 28.2% in 2010-11. A lot of catching up will be needed in the next three quarters if earnings moderate in the June 2010 quarter. ?If the market is following earnings, this could be risky,? points out Citi.