New Delhi, Oct 5 : The base effect is the primary driver of lower revenue growth for BSE 500 companies, but even after adjusting for base, a large number of firms are reporting topline deceleration, DSP Mutual Fund said in a report. Last quarter, nearly one in three firms reported a decline in sales over the same period of last year, the report said. Indian firms are witnessing a slowdown in revenue growth. This can impact profitability, it said. Post-Covid, Indian firms have enjoyed very strong profitability. The primary driver of profitability was cost-cutting, an initial decline in raw material costs, and then very strong topline growth aided by fiscal stimulus across the world. Out of these three levers, topline growth has been the key driver, along with margin expansion. 'We believe that the outlook for both of these vectors is becoming murky, and sales growth momentum is slowing. India has enjoyed a rich price-to-earnings multiple because it has delivered earnings growth. If earnings disappoint, valuations will also adjust lower," the report said. In October 2021, Indian markets peaked after a stellar rally. Since then, the complexity of the market has changed. Large-caps have struggled to generate significant returns, while smaller firms have performed better, the report said. Recently, as a sign of investors chasing the recent performance, the SME segment has seen a large outperformance over other segments. Since the Covid bottom, the SME segment has delivered stellar 86 per cent CAGR returns. This is not just exceptional, but also a sign that markets have become overheated, the report said. Some recent IPOs on the SME platform have generated exceptional interest from investors. A few IPOs garnered 286x and 450x subscriptions for small issue sizes. 'A large dose of caution in the smaller segments would serve the investors better," the report said. It added that higher rates in the US are creating conditions for a disinflationary and deflationary trend. The US Corporate bond market is complacent with ultra-low spreads. These are ripe conditions for a knee-jerk reaction if some unknown events occur. Junk bond yields don't tell the true picture of tightening financial conditions in the US. This is a warning sign, the report said. The US dollar has once again reached levels that are unsustainable. If growth slows, the biggest beneficiary will be gold. China, a historical source of growth, is becoming a fountainhead of disinflation. The divergence in global trade and corporate revenues is likely peaking. A convergence can occur with corporate revenues slowing. /IANS