The preponderance of bad news continues unabated. Reminds me of 1996 / 2002 times. Every few weeks a nasty surprise hit the news.
Are there any more bubbles waiting to burst. Here are some likely one's on the horizon. And the one's that we can't see...well those would be the real surprises.
The decoupling theory is already under a cloud. That the recession in US will have an impact on Indian economy is certain. What is not certain is the extent of impact. I feel that the cascading impact of US recession will be impact India's growth across sectors. The impact on India is going to be more severe than commonly expected
Oil price bubble
Crude oil prices have nearly doubled in a years time to $105 now from around $ 50 a year back. However, a large part of the hike has not yet been passed on to the Indian consumers.
For now the government is subsidizing by paying the difference to oil marketing companies in order to hold the price line. But it cannot do that for long, since the oil marketing companies will run out of cash soon. The price hike has to hit the Indian consumers - one way or the other.
India still remains the #1 outsourcing destination. But it seems the cycle is turning. Alternate destinations like Eastern Europe, Mexico, Philippines, China are picking up speed. Rise in billing rates, talent crunch and high attrition rates are acting as a dampener.
Real Estate Bubble
Real estate prices in Tier I and Tier II cities have gone up as much as by two to three times in past three years. That kind of rise is not warranted by the growth in the economy. Corrections have already happened in bits and pieces. As India slips into a slowdown, its very likely that the real estate bubble will also burst.
Its very likely that India will also slip into a recession (we are already slowing down). The GDP might not go negative. It might just go down to 1% levels, but the industrial / manufacturing / services sectors will contract. Sales will go down, profit down - consumer spending down - real estate down - pay cuts - no increments job losses. Its a glum scenario to say the least. Will have a better line of sight by June '08.
Bubbles in US
Are there more bubbles remaining to burst in the US still ? Will there be a financial meltdown. The way things are going, it seems that most things should unfold in next 3-6 months.
These are the really nasty surprises. Like the derivative losses of Indian companies. Took everybody by surprises. Will we get hit by a surprise sidewinder.?
Related posts on impact and some ideas on what a long term investor can do :-
Sensex - 10K in one year and 80 K in eight years
India : from a slowdown to a recession - and what it might imply
Indices doing a Last Gasp Rally (LGR)? - A suggested Strategy