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In 2010-11, agriculture contributed around 17 percent, services contributed 54 per cent and manufacturing contributed the remaining 29 per cent. In 1990-91, just before reforms began, the contribution of agriculture in GDP was much higher at 32 per cent, services' contribution was lower at 41 per cent and manufacturing was also lower at 27 per cent.

Since the corporate sector had little presence in agriculture, earnings trends were often divorced from GDP growth at that point of time. What is more, since large chunks of corporate India were unlisted, given the monopolistic dominance of unlisted PSUs, there was little interest in tracking corporate trends. That disconnect no longer exists. By and large, corporate growth seems to march in step with GDP growth. A much larger chunk of the economy is also listed, making it easier to track.

In the past decade or even longer, there hasn't been a single fiscal when acceleration or deceleration in GDP growth wasn't matched by a similar trend in corporate growth. There are differences of emphasis and leads and lags, of course. The investment-consumption mix also seems to make a difference in terms of the sectors that outperform and underperform.

This correlation between corporate performance and macro-economic performance gives us an interesting tool to check budgetary estimates versus corporate earnings estimates. Budgetary estimates are top down and they incorporate large error factors. Corporate estimates are bottom-up and carry an error factor as well. Both budgetary estimates and corporate estimates tend to be over-optimistic – it doesn't pay to be a pessimist in either politics or investment.

But recent history tells us that both sets of estimates are more likely to be correct – or rather, the error factors will be smaller - if they are both trending in the same direction. If they are at variance in terms of trend, the corporate estimates are more likely to be correct.

There may be a variety of reasons why corporate estimates are usually slightly more accurate. Maybe its simply easier to gather data on, and study a given company, or sector, than to map the course of an entire national economy. Another is that a corporate analyst has his or her personal livelihood at stake, if egregious errors occur. A third is of course, senior executives and promoters may lose both credibility and net worth if they intentionally mislead auditors and analysts.

As of now, there is indeed a variance in estimates. The budget estimates suggest that some sort of rebound in GDP growth is expected during 2012-13. Meanwhile, corporate earnings estimates have been cut after the Q4 results.

The consensus on the Nifty Sensex basket is that earnings growth in FY 2012-13 is likely to be 2-3 per cent lower than the estimates made in February after Q3 results. What is more, the earnings downgrades are pretty much across the board. To my mind, slow corporate growth implies lower than assumed revenue collections, as well as lower than estimated GDP growth.

There may be positive earnings surprises in 2012-13. Or inflation may suddenly drop. Or the global economy may sort itself out sending another flood of cash India's way. But the current data backs the pessimistic outlook. Consumer price inflation is above 10 per cent and the index of industrial production is negative. What is worse is that this trend of slower growth and high inflation has been visible now for over a year.

There is no sign that the government is prepared to take policy action to combat it. If the policy drift continues, there is a high probability that the market will also continue to head downwards. Under such circumstances, it is very difficult to make money in the short-term.

People above a certain age will remember the situation between 1996 and 1998 when the market went nowhere for three years. They may also recall the situation between 2000-2003 when the market went down for four years.

We could see another long bear market of a similar nature. The problem is, there isn't much an investor can do in circumstances where growth is flattening out and equity prices are going sideways or down. Waiting it out is about the best strategy.

There is no sense in abandoning equities at these levels. Eventually, the Nifty will go back above 6,000 so there is some margin of safety. Keep accumulating steadily, preferably using some sort of systematic plan. Defensive sectors like FMCG and pharma will definitely retain more value than the overall market so it makes sense to go overweight in these stocks.

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