The markets are at historic high. So is the volatility. About two years back, when the markets registered about 1200 point fall in a week, the headline in a reputed financial daily was, “Is any body in Delhi listening?” Today, even when the markets register fall of 2000 points in a week, it appears normal. The back drop is, we all are convinced on few issues as the markets are over priced, the markets are substantially in the hands of FIIs, and on the optimism side, we are headed for a big boom.

I am not trying to sound bearish, but we must remember Japan Experience, when in 1990’s its index reached historic high following boom in Japanese Industry, but today the same index is at half of that value. And mind it, people have learned to live with it.

Let’s see some reasons for being pessimistic for 2008.

What needs to be seen is, that is the boom, or the industrial growth for real.

Answer is, sector specific, both Yes and No. World over, industry has been killed by China to large extent. Textile, Furniture, Toys industry is dead in Europe and North America. Reason, is clear that these nations can not match the labor costs of China and to some extent India, where labor wages, and exploitation is much higher compared to these nations. This means, ample scope for Indian markets to grow and capture its due share. But would we be able to beat china is some sectors as Electronics, Furniture, Toys etc. Yes, in Cement, Steel, Petrochemicals sectors, India enjoys and is expected to retain an edge.

The markets at its current valuations have made some new millionaires. These people are likely to, and should, book profits at current levels, that may bring pressure on the prices, at least for the short term.

The investor faith in current valuation of the market is yet to take roots. In the background, every body seems convinced that markets may go bust one day. This lack of faith leads to herd selling at the slightest trigger. I will not be surprised, if before the announcement of third quarter of results, markets touch 18000 levels or around.

Our markets can not be de-linked with US markets and US appears to be headed towards recession. If this happens, the Indian markets could go down.

Goldman Sachs opines that, net of inflation, Indian Markets deliver 2.5% return, which is too meager. These funds would tend to move any day, the moment another opportunity comes up any where in the world. Merrill Lynch too expects a consolidation and says that fair value of Sensex is close to about 16,000.

Political instability rules the country. Any news on political front will send jitters down in the market.

Let me not conclude the article with only negatives of the market.

I fear, markets may touch around, 17000 levels, but should soon emerge. The markets, at current global trends, would have to establish new equation with dollar rate. Growth in infrastructure, services, petrochemicals sector is for real.
Stocks in these sectors alone could push sensex to 25000 levels by about year’s time. But that does not mean all that growth would be across the board. Some shares are bound to stagnate.

Be sector specific.