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On Tuesday June 9th the US Treasury gave approval to ten big banks, nine of which had earlier passed “stress tests” set by regulators, to allow them to repay money to the government’s Troubled Asset Relief Programme (TARP). These should be a combined repayment of around $68 bn.



Markets are really taking this news as a signs of a end of the worst for the financial system, however the US treasury secretary says "These repayments are an encouraging sign of financial repair, but we still have work to do,”



Do you know how have these banks which were in deep trouble 6 months back have managed to raise such money...? No no, not by being profitable, its just by selling their equity to public. Still, there is a long way to go. Paying off the first $68 billion is a healthy start, but western governments own roughly $450 billion in banks. If markets or the economy slump again, investors’ appetite for new shares will evaporate and these bank would be in blues again.





Even today in US, the things are not as good enough as it looks. The banks are using the life support systems provided by the government. Central banks provide generous collateral rules for borrowing, in an effort to provide banks with liquidity and the system needs to refinance some $25.6 trillion of wholesale funding by 2011. This is whopping 25 times or more than India's GDP.

Thus all this, which makes one think that we are completely out of woods needs some more deeper analysis. Stocks like L&T trading at a P/E of 34+ and Sensex up by around 85% in last 2 months. Do we still see more upside...? The answer is quite debatable.

Most of the companies/sectors have already gained huge on expectations that budget will be a panacea, hence even if budget does provide all the reforms (which is very very unlikely), the same is already discounted into the prices and we should see profit booking. If you all believe in short selling, the most probable losers (If Nifty corrects) should be: L&T, JP Hydro, JP Associates, DLF, Educomp, Reliance Power, the list is long. Would like you people to add some more on the list.