Reading the fineprint

The past few days have been full of important developments, both positive and negative. One, US government prompt clarified their stance on nationalization after Citi fell massively in Europe and Dow. Its a positive signal from the government indicating minimum government control in privately run banks. It might sound great at the face of it, but I don't think its going to be easy sitting outside the table especially when you have pumped in such a lot of money into the banking system.

The government should certainly have its representatives on board to establish governance mechanism and regulatory framework. Some banks had recently announced huge bonuses, though in absolute terms, they were much less than the previous year. It will be hard to imagine US banks like Citi doing this, as they are accountable for every penny they spend. Having government representatives on board will help stem such acts. It is going to take couple of years to weigh the impact on IT companies like Infy, TCS and Wipro. It will take a few years until these companies show performance on their balance sheet. The action plan before the new government is to first restore normalcy, create a balanced economic environment through stimulus and create jobs. Outsourcing cannot happen at the expense of these three. You cannot create IT jobs at a remote location when the core-jobs and business is dissappearing! Clearly for IT, its too early to expect a big turnaround.

S&P rating brought some basis to my sell recommendations! S&P is right in pointing out the huge fiscal deficit, but more than anything, the next government needs to act with restraint. The present government has already done all that it could. The next government should focus more on reducing expenses, inviting investment(FDI or otherwise), provide sops for new businesses and not just provide tax relief. I'm sure the next goverment would be tempted to announce tax concessions, sops and so on. A clear restraint and focussed policy on distribution of money from the rich to the needy would alone solve problems. You need to encourage spending across all categories and classes and policies must clearly move in that direction. Lets wait and watch!