Sh shooooo………Investors, watch out 2008 !  

Vinay Ranjan / Sep 29

The Union finance ministry and the domestic regulators have warned the retail investors to be cautious while investing in the financial market as the Bombay Stock Exchange (BSE)’s Sensex is on a bull-run.

All are not comfortable with this unexpected rally of the bourses following the rate cut decision of the US Federal Reserve.  Sensex crossed 17,000 mark  and it is still on the onward march.

P Chidambaram, Union finance minister himself warned investors to do homework before investing in the market at the present level of the market. He met regulators to take the stock of the situation.

The market players are also of the view that the US sub-prime mortgage crisis is likely to pose challenges globally and in domestic market in 2008.  And, Indian capital market needs to be vigilant.

Participating at a discussion on `Recent global developments – impact on the Indian capital market’ organized by Indo-American Chamber of Commerce this week, Rakesh Mohan, deputy governor, RBI said, “given the speed at which the financial markets’ contingencies are taking place, you’ve to be very much cautious”. Subprime crisis issue is a symptom rather than a cause. The recent crisis has brought the need of a strong surveillance, he said. 

He said that the rising food prices globally have complicated the task of the central banks. In spite of high food prices, the RBI has been successful in achieving its goal by bringing the inflation below 4%.

The latest inflation figure as revealed by the government in New Delhi on Friday was 3.2% for the week ended on September 8 as against 3.3% the previous week.

There was a constant rise in the food prices at global level which has further made the task of the central banks, including RBI, difficult while formulating the monetary policies. Still, RBI has been able to maintain financial stability in the country with its enhanced vigilance, he said.

Ecohing similar view, Rakesh Jhunjhunwala, Partner, Rare Enterprise, said that there may be a slowdown in the Indian software industry and a cut in the software spending is expected as a result of the slump in the US economy. 

“The US economy is growing at an unsustainable level. The world is underestimating the sub-prime crisis. I foresee the problem in the housing to get worse. The resultant slowdown of the American economy will worsen the crisis”, he said.
In line with Jhunjhunwala, Michael Owen, Consul General of USA said that the sub-prime crisis is likely to generate a big debate on the economic policies of the government in the US Presidential poll scheduled to be held in 2008. 

US economy may face challenges, but still there is lot of strength in the economy. “America is still number one destination of investment”, he said.

The market experts were of the opinion that the domestic capital market needs to be careful as the sub-prime crisis may impact the global economy in the short-term. The US poll and the forthcoming Olympic Games in China need to be watched to chalk out a road map for the domestic capital market in 2008, they said.

Among others, Vallabh Bhansali, chairman, Enam Securities and  Andrew Holland, chief administrative officer, EVP, DSP Merrill Lynch have participated in the discussion.