Indian corporate profits have shown negative growth for 4 out of the last 5 quarters. This is not great news for an economy that is growing at 7.5% per annum and valuations are quite rich by global standards. The big problem that Indian companies face today is falling “Return on Equity” (ROE). In fact, ROE has been consistently falling after peaking out in 2007. Most analysts have been building in aggressive growth estimates to justify higher valuations for Indian stocks. The last year was fairly disappointing and any further downside risk to earnings will lead to a re-think in valuations. The markets are expecting Indian companies to get back to a 15-16% profit growth from this fiscal, and that will be a litmus test.