‘Post-March markets should correct and consolidate’

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: The year 2008 is expected to be action packed for the derivatives market as the regulator will be opening up the sector for several new products that would help investors hedge better. Ashwani Gujral, ace technical analyst and author of several books on derivatives responded to queries posed by Rajesh Naidu of The Financial Express on what to expect in 2008. Some excerpts.

What are the key indicators or developments or triggers investors should watch out for in 2008?

The significant triggers in 2008 would be liquidity, global markets, domestic political concerns and the India growth story. Sources of liquidity are going to be important in 2008, as more sovereign funds, endowment funds, etc are likely to replace some of the more traditional FIIs. Also domestic investors including retail and insurance companies expected to take a more active role in the markets.

Global cues would be key to the progress of the markets. It remains to be seen whether US economy enters recession or how fast the US fed cuts interest rates. If the fed cuts interest rates at regular intervals, which would keep enough liquidity to sustain the emerging markets rally. Also, there are inflation concerns because of high crude and metal prices, which may raise their head from time to time. It remains to be seen if the dollar decline gets arrested and pulls back after consistent declines in 2007.

RBI will have the tough job of managing the currency. As the employment generating export sector faces tremendous pressure from a rising currency. RBI would also need to fine tune reduction of interest rates to manage the ongoing soft landing and asset inflation. The Finance Ministry is expected to come out with more policies like the banning of P-notes to manage flows if currency appreciation gets out of hand.

Politics is likely to be the wild card which will raise its head from time to time, as parties get into an election mode. These temporary disturbance are only likely to provide opportunities to long term investors. Traders will have to be ready to trade both sides of the market.

From a markets perspective, we expect Nifty to have a final burst to about 7000 on the Nifty before the budget before it goes through a deep consolidation post the budget and corrects 20-25% and finally finishes the year with a 10-15% gain on the main indices.