2008: The 'could-be' Famous Five - Views on News from Equitymaster

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2008: The 'could-be' Famous Five

Jan 1, 2008

In passing off the year 2007 with its issues like the US led sub-prime crises, the Indian rupee's nerve wracking upward move, the P-Note shocker from the SEBI and valuations of power utility stocks, we enter a new year 2008 with its sets of 'knowns' and 'unknowns'. In continuation of our previous article on the famous five from 2007, here is what we believe could be the famous five for the coming 366 days of 2008.

  1. Olympics: "Citius, Altius, Fortius" This is the Latin motto for the Olympics and when translated means faster, higher and stronger. In fact, on second thoughts, this motto would definitely not be out of place while describing the current might of the Chinese economy. It is hardly any surprise then that the world's biggest sporting spectacle will take place in the world's fastest growing economy in 2008. Thus, while countries from all around the globe will be egging their champion sportspersons to finish atop the podium, there is little doubt in the minds of economy trackers over who will come out on top of the economic pegging order few decades from now. Further, while the event organisers will closely scrutinise score sheets, commodity trackers all over the world will have their eyes glued on another sheets. These would be the price trends of a wide range of commodities as the quadrennial event in Shanghai had a significant role to play in these items hitting the roof in recent times. If anything, prices might come down a bit but unless significant new supply comes in, the long-term trend we are afraid, points to firm prices. Indeed, if half the world's population (read India and China) wants to live like its American counterparts, the immense pressure on the natural resources of the world cannot be denied.

  2. Rs 1 lakh car: Over the past few years, the Tata Group has developed a knack for grabbing headlines, mostly for their ambitious overseas acquisitions. The year 2008 is likely to be no different as the thirst is far from being quenched. However, what is likely to overshadow this binge is a quiet revolution that is currently being brewed or should we say being assembled at one of its group company Tata Motor's plant somewhere. If all goes well, the company's much talked about 'Rs 1 lakh car' will hit the roads in 2008 and it is an event that the whole manufacturing world will take note of. Thus, while India's prowess in the software sector is now well acknowledged, the success of this launch will possible pave the way for India's recognition as a top notch manufacturing hub known not only for its cost advantage but also for its quality. If this were not enough, the company is believed to be one of the frontrunners for the ownership of Ford's iconic brands 'Jaguar' and 'Land Rover'. Clearly, there can't be a better variety in the kitty of any automotive company. Talk of cars for both the 'common' as well as the 'uncommon' man.

  3. Basel II: 2008 is set to be an inflection point for the Indian banking sector as the players in the sector equip themselves with adequate capital and risk appraisal methods to comply with Basel II guidelines by March 2009. While the risks of sub prime delinquencies trickling down into the books of Indian banking entities continue to loom large, sophisticated risk appraisal methods are expected to bring forth the much-desired transparency. Government owned banks are expected to adopt novel methods of capital raising given the stickiness of their promoter holding.

    Besides, given the RBI's guidelines for opening up the sector to foreign players by 2009, we could see plenty of activity on the consolidation front as well. The same will call for a change in the mindset of PSU banks and gradual alignment in the operating metrics of the public and private sector banks for the larger benefit of the sector.

  4. Recession: The subprime fiasco of 2007 has dealt a major blow to the US economy, resulting in a considerable meltdown in the housing market and unleashing a credit crunch worldwide. Add to this the fact that commodity prices especially energy and food are on the rise and it is widely touted that the US economy is headed into a recession in 2008. The US Fed has been on its toes reducing the Fed rate and infusing liquidity into the system to facilitate credit expansion and its European counterpart, the ECB has also been at the forefront in this regard. However, all of this so far has not provided any relief. This is because given that the extent of these subprime losses cannot be gauged, banks are considerably vary of lending further. Any recession in the US will play an important role in shaping up the world economy in 2008 and will likely impact most those countries that are largely exporting to the US.

  5. Politics: India shall conduct its general elections either in late 2008 or early 2009 and the US will have it in November 2008. The stakes for both the elections are high with the ruling parties trying their level best to score brownie points over the next few months. And how can they do that? By not taking any tough measures on the policy front! As far as India is concerned, we can expect a 'aam aadmi' budget this February. The government, which has already been at loggerheads with the Left parties on Indo-US nuclear deal, is not likely to take up any reform measures including contentious labour reforms. Also, political compulsions may not allow the FM to undertake drastic measures to achieve fiscal discipline either. Especially with the drubbing it received in Gujarat and Himachal Pradesh, the United Progressive Alliance (UPA) government is expected to intensify its efforts to control prices of key commodities like cement, steel, wheat, sugar and pulses, which are otherwise expected to rule firm in 2008.

    Wishing you all a very happy new year 2008!
    Team Equitymaster

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Aug 13, 2020 03:37 PM