Finance News

The first day of trading in 2008 saw the Indian markets close marginally in the positive. While power, energy and select auto stocks witnessed participants' interest, software, telecom and pharma stocks reeled under selling pressure. In the global markets, while Europe closed mixed, losses were seen in most of the Asian markets like Japan and China. Japan's Nikkei index has actually been one of the worst performing markets of 2007, as it recorded an 11% decline year on year (YoY). While this was the index's first loss in 5 years time, concerns have mounted regarding a strong yen and worries about the subprime crisis and a bleak US economic outlook. Japanese investors' lookout for greener pastures (like India) seems to suggest that things are really not rosy in Asia's largest and world's second largest economy.

Here's the first sop for the election year - the Finance Minister has hinted at 'moderation' in tax rates for 2008-09 subject to improvement in compliances. A newspaper report goes on to state that, "Chidambaram's comments come on the back of robust growth in tax revenues so far this year and significantly improved compliance." This can very well be seen from the 42% YoY increase in direct tax collections as of November-end this fiscal. Corporate tax collections have also shown a strong 40% YoY increase. Personal income tax collections (including fringe benefits, securities transactions and banking cash transaction taxes) have grown by a more robust 50% YoY. This tax moderation news may sound good news for good people (who honestly pay taxes). Though implementation will be key.

CNN's financial website states that the US is in for a bumpy ride in 2008. For 2008, its states, investors need to be prepared for more woes in the slumping housing market and a slight rise in unemployment. 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. We believe that any severe slowdown 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.