The fault in our markets, dear reader, is not in China, but in our companies. The government says that India’s fiscal and trade deficits are under control; our reserves, over $300 billion, enough to stave off an attack on the rupee.

So, why did Moody’s downgrade India’s growth projection from 7.3% to 7% last week? Why is lending by banks, a proxy for growth, limping at 8.4%, the lowest in 20 years?

But let that pass. Folks who move billions of dollars across the globe in search of returns don’t buy countries; they buy shares in companies. And India’s corporate sector is up to its waist in, well, its own poop.

Investors buy stocks hoping companies will make bigger profits in future, pay dividends or invest in growth to make more profits, boosting stock prices further. Here, these hopes have been dashed.

Profit or earnings growth is measured every three months (or a quarter) against the year-ago number. In the quarter ending December 2014, seven months after the Narendra Modi regime came to power, earnings shrank 0.14%. Oh, well, temporary blip, government settling down: shrug.

But when March 2015 quarter numbers came in, investors choked on their Cohibas. Earnings shrank a horrifying 6%. The bad news continues: during the last quarter that ended June 2015, profits were down another 4.5%.

Investors bet big on the Narendra Modi regime turning things around, boosting profits. Instead, the regime has piled on misery for companies and investors.

The UPA-II regime was accused of policy paralysis, but now corporate honchos sip their Taliskers and reminisce wistfully about those same quarters one year back, when profits grew between 7% to 9%.

As companies suffer, so do investment banks who manage your money. Traders’ bonuses depend on returns delivered. In three weeks, our top 30 companies have shed more than 7% of market value. As returns shrink, investors head for the exit.

But the steady fall in profits is not the scariest thing about Indian companies. There’s a Golem lurking in the shadows that can bring India’s corporate, banking and financial system down. It’s called Debt.

In August 2013, Credit Suisse (CS), a global investor, reckoned that 10 large Indian conglomerates had borrowed a staggering Rs 6.4 lakh crore. This was nearly three times India’s defence budget at the time.

Each of these companies didn’t even generate enough cash to pay interest on what they’d borrowed. Nevertheless, CS hoped that by 2014-15, many of these companies, heavily invested in the power sector, would generate 15,000MW of electricity and pay back banks.

Well, tough love. Apart from Reliance ADA’s Sasan and a project by Tata Power, everything is stalled. Technically, groups like Lanco, GVK and GMR are bust: in the US, they’d have to apply for Chapter 11 protection, their managements ousted and assets sold off cheap.

Not so here, where state-owned banks continue to ‘restructure’ loans: “Oh, you’ve lost Rs 100 crore of our money? Here, take another Rs 200 crore.” And so it goes. Banks are riddled by graft, kickbacks are routine, and no promoter is ever broke. Meanwhile, their companies are bust and shareholders bereft of their chaddi-banians.

Since 2013, things have got worse. This month CS published a report on our corporate cesspool. It’s couched in jargon, so I’ll rephrase the horror story.

CS says the June 2015 quarter “saw further deterioration in corporate health .…” It says that the share of companies that didn’t make enough cash to pay back interest grew to 42% of the total, compared to 35% two quarters ago. The main culprits are two sectors: metals and infrastructure.

The steel sector has overtaken infrastructure, the main villain in the recent past, as the largest defaulter. One year ago, 11% of steel companies couldn’t pay interest costs; today 29% can’t. The amount due is a staggering $63 billion, or Rs 4.2 lakh crore. Our steelmakers are the most indebted in the world.

Infrastructure companies which can’t pay back interest on loans now owe banks $49 billion, or Rs 3.2 lakh crore. Make in India, anyone?

Officially, state-owned banks claim bad loans of around 12% of total lending. This is more than double the levels a few years ago, but this figure is an understatement.

Jean Paul Getty, an early 20th century US oil magnate, said, “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” So graft-ridden state-owned banks hide the actual, awful numbers and humour defaulters.

CS reckons that most state-owned banks are drowning in their own dung. They have lent heavily — and continue to do so for mysterious reasons — to metal and infrastructure companies, which can’t repay in the foreseeable future.

So, CS advises investors to dump shares of these banks. I’d say, start praying and keep cash under the mattress.