Relief Rally comes as a Relief.

Governments join hands to save banks. The net result is : The financial services sector is effectively nationalised.

How things change! Just a new months ago, privatization was the way to go. Now, starting from the USA, leading to Uk, Belgium, Iceland, Germany and more, countries are nationalising their banking companies.

I think this is all for the good. Financial Services offer immense opportunities for manipulation & fulfillment of greed. The value addition by these companies is negligible. Compare for example an “Investment bank” (brokers in India who also provide other services) which wheels and deals and Tata Steel which makes steel. Tata Steel adds value for every ton of steel it makes. It provides employment, pays taxes, fulfills its role as a contributor to society. The Investment bank makes money by manipulation & insider trading, it employs very few people who are paid absurd salaries and bonuses. What value addition does it provide ?

Then, the long term impact of the nationalisation will be beneficial. But, this will certainly hurt shareholders of the nationalised entities. As an example, the Royal bank of Scotland (RBS) was nationalised today in the UK. Its share price fell 6.56% today while the FTSE was up by almost 5%. (The RBS has already fallen 80% from its highs!). Most other banks / housing societies also saw similar decline in equity prices.

PSU BANKS
For this reason, it is wise to invest mainly in PSU Banks.

Here is a suggested Portfolio for investors wishing to invest now.