GM Bankruptcy can lead to next round of fall

President Obama is saying that a quick, negotiated bankruptcy is the most likely way for General Motors to restructure and become a competitive automaker and he is also prepared to let go bankrupt and be sold off if it can form an alliance with Fiat.

I think this move is a better one than providing tax payers hard earned money to save these ailing companies. On one hand this sudden bankruptcy announcement by the auto majors could trigger a fresh round of selling in the global financial markets (as in Lehmans, Bear Sterns case in the past) but on the other hand it would lead to a long term competitive markets (since it would be a lesson for other companies in US and at the world level too).

For Indian markets the bad news is that the total IT outsourcing deal by the US auto sector is around Rs 5000 cr and any such move could lead to huge amount of losses for the Indian IT sector, specially TCS. The news is also negative for the Indian auto ancillary sector which depend heavily on US exports.

Thus apart form the news (it it actually happens) that world's one of the top auto companies is filing for bankruptcy, there is a strong linkage for the Indian stock markets and could bring the index down. Hence, any long positions should be taken care cautiously.