Poisoning Indian Stock Markets

They thrive on the 'greater fool theory'. They are driven by the behavior of perennially optimistic market participants (the fools) who buy overvalued assets in anticipation of selling it to other speculators (the greater fools) at a much higher price. They have led to economic catastrophes like the Great Depression and the latest subprime crisis. They are threatening to bring the fastest growing economy to its knees. Yet economic "bubbles" as they are popularly called, are set to have a longer life.





Cheap liquidity which is the lifeline of global asset bubbles continues to find supporters in its birthplace - the US Fed. Determined to keep interest rates near zero long enough to drown global economy in surplus liquidity, the US central bank has refused to pay any heed to sensible economics. In their latest meeting, Federal Reserve officials repeated their pledge to keep interest rates near zero for an 'extended period'.



Economists in the US opine that the housing market will be able to weather the removal of the stimulus programmes once the economy begins to create jobs and banks ease up on credit. Well, if that is the logic for the US Fed's reluctance to raise interest rates, cheap liquidity is here to stay. For the US Treasury Secretary Timothy Geithner has himself expressed his concerns over unemployment rates in the US remaining elevated for longer than expected. US banks can try to ease up lending only if the US consumers get back to borrowing and spending. Each of these is therefore expected to add to the flow of cheap liquidity into emerging markets and risky assets. While China seems to be happy to accommodate it in its real estate sector, Indian regulators need to ensure that they do not poison Indian stockmarkets and real estate.

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Attrition is back at IT companies

Economic recovery has brought good times for Indian companies. The same is true for IT companies as well. From uncertain times till about a year ago, these companies are now much clearer about their revenue visibility for the medium term. Clients are back on the discussion table. And they are loosening their purse strings to spend more on IT offshoring.



Now, while all this sounds hunky dory for the IT sector and its companies, there is one concern that seems to be raising its head. We are talking about employee attrition. Given the improved business scenario and the fact that IT companies across the board are back to hiring again, IT employees are suddenly finding themselves with a plethora of job options. And this has started giving sleepless nights to the HR managers at IT companies. Even a company like Infosys is not spared. There are reports that the company is seeing higher attrition as employees are looking out for other options. But this should not be a serious worry for the company given the good amount of bench strength it has. The problem really lies for the mid and small size IT companies that nether have the bench nor the financial strength to retain key employees. In fact, we see employee costs rising for the broader IT sector, and margins coming under some pressure as companies try to retain their assets - their people.

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