What should we expect in 2008? Nothing very dramatic, says Vivek Sharma.

GDP growth will moderate: This is the easiest one, a prediction most can make. Growth rate will moderate to between 8 and 8.5 per cent in 2008. That is not much of a drop, but may disappoint many who believe that we are all set to grow at double digits. There are many reasons - several key reform initiatives on hold ahead of general elections, modest slowdown in consumer demand, subdued outlook for sectors like technology, autos, etc.

Rupee will hold level: After all the hard work done during 2007 to gain strength, the currency may decide to relax and enjoy the good times - though many will continue to say the currency is a fatso.  If the US economy evades a recession, we may see a modest dollar recovery and the rupee may give up a part of the acreage it encroached recently.

This should come as a relief for labour-intensive exporters, who have been projecting job losses in the millions to get the government's attention. The government will obviously be a better listener as the general election nears. RBI will be more than content to keep its political bosses in good humour by letting the rupee drop a bit.

The scenario will be different if the US slips into a recession and the Fed responds with very aggressive rate cuts, similar to the post 9 / 11 response by the Greenspan Fed. The dollar will slip and other currencies, including the rupee, will gain more weight.

Interest rates will go nowhere: Inflation will inch up, if and when allowed to. But, even a moderate decline in economic growth rate will prevent the RBI from hiking rates - especially close to a general election. Aggregate annual capital inflows, including FII inflows, FDI and overseas borrowings by Indian companies, are unlikely to fall much below the nearly $100 billion clocked in 2007. Hiking rates will attract even bigger inflows, especially short term funds seeking interest rate arbitrage.

There will be political pressure to bring down interest rates to support growth, ahead of general elections. The finance minister has already made some noises, asking banks to cut rates by 50 percentage points. In other words, RBI's tight rope walk will continue.

Protests over land acquisitions will intensify: To most of us who dismissed Nandigram as an isolated incident, made worse by the state government's inept handling of the anti-land acquisition protests and arrogance, the recent developments in Goa should be an eye opener. The Goa state government has cancelled the SEZ projects announced earlier, following protests by the middle class - an interesting suggestion in a financial newspaper. To those who are opposing and planning to oppose land acquisitions, Goa now sounds and smells of victory. Expect them to up the ante and make life difficult for the state governments and SEZ developers.

Tata small car will be a hit: If they get the pricing right, there is only one way such a product can fail - if it falls apart when the first few excited buyers take it out for a spin. Product quality is not quite the forte of Tatas, though they always offer exceptional value, but they must have learnt most of their lessons from the rather steep learning curve of the Indica. Incidentally, the Indica was voted as the worst quality car in its class in South Africa - but is still a best seller there.

Indian businesses will hunt for more foreign buys: 2007 was the big year for 'the global Indian takeover', as mainstream media calls it. Indian companies will step up their global expansion efforts for two reasons. They will find many struggling businesses at attractive valuations and raising money for overseas acquisitions will not be a big issue for Indian companies - even if the credit squeeze worsens.

Organised sports as entertainment will take off: As we become more prosperous, we all will spend more on entertainment. Yes, we are already world leaders in number of movies produced and may soon have the most number of television channels. But, until now, sport as entertainment was limited to live cricket telecasts on television.

A new era dawned with the Indian Cricket League in 2007. The event was barely a success, but the potential was pretty clear if such events can be run professionally as a business. ICL has announced a series of events for this year while the Indian Premier League will be rolled out in the second quarter.

It is unlikely that this will be a purely cricket related business. We already have a professional hockey league which is in its third season. Sunil Mittal of Bharti has just announced his decision to bankroll soccer in India, in a unique 'public-private' partnership. Indian soccer has had semi-professional events for many years now, mostly limited to soccer crazy states of Bengal, Goa and Kerala. With money flowing in, it is only a matter of time before we see professional, spectator-friendly, soccer events.

How big is this professional sport - entertainment business going to be in future? Take American baseball, American basket ball and European soccer, and multiply by ten! But, don't expect promoters to make money for some years to come.

Property prices will moderate: Residential property prices in big cities have settled down after a frenzied three-year run and even corrected modestly in some markets. Prices may remain subdued in 2008, as supply of constructed space increases. Most of the residential developments launched between 2005 and 2006 will be completed in 2008. If property speculators get unnerved by the price correction, we can expect a further decline. Buyers may not rush in as interest rates remain stable, even though income levels will continue to increase - though modestly. Of course, this is not applicable for commercial property as supply remains hopelessly short of demand in prime locations.

Tech stocks will remain subdued: If the rupee corrects, as suggested earlier, tech stocks will see a modest recovery. But the trend is unlikely to be sustained, as the currency is likely to gain further in coming years. If there is a recession in the US, it will be a double whammy for the tech majors as demand for services will decline and the rupee will appreciate further.

2007 might have been the beginning of a new phase for large Indian technology companies. Business will continue to grow at a faster rate than most other sectors, but the high margins enjoyed by them now will be history. Global majors like IBM and Accenture have scaled up their Indian operations in a big way, diluting the cost advantage of Indian companies.

Though Indian companies are making ardent efforts to move up the value chain, it will be a long drawn out process. Employee costs will continue to rise, as supply of talent is rather limited, though the rate of growth may slow down. Hence, operating margins of Indian companies are likely to decline and move closer to the average margins of their global peers. If that happens, the high price - earnings multiples enjoyed by tech stocks will be unsustainable.

Infrastructure will remain the best story in town: Bull markets need spectacular stories to sustain the momentum. Most of these stories start as modest, realistic visions based on some trend-shift or innovation. Once a story is hyped up and sold to investors, it assumes a growth momentum of its own and will be simply overblown in no time. Then, unexpectedly for most investors, the true worth of the story will dawn on them and a painful correction will follow. The original story will still be valid and attractive, but the froth will be removed.

Infrastructure has been a big story for the last couple of years and last year saw stocks being driven up to incredible valuations, most visibly in sectors like power generation and oil refining. The valuations of some of these stocks are similar to those enjoyed by internet stocks at the peak of the tech boom. The story still has enough momentum and is likely to remain the major driver of markets this year as well.

Reliance Power IPO may signal market top: This is the most risky and difficult prediction to make and it is very likely that I will be wrong. As one of my New Year resolutions is to 'be brave', I am spilling it out. Reliance Power will be the most high-profile IPO this year and the most hyped up as well. It has all the ingredients of the 'big story' bull markets need, as explained above. There are not many stocks to play this story, which makes the IPO very attractive to investors. But, there is already a long queue of power generation IPOs - waiting to follow Reliance Power. Sterlite, JSW, Essar ………, the list may get longer in the coming months. All of them are thinking big and plans to raise over $1 billion each.

Contrary to popular wisdom, supply of fresh paper can at times prolong a rally as they attract new investors who bring in fresh money into the markets. But, to sustain the flow, the new stocks should perform well after listing. The question is, can the power generation IPO's that will follow Reliance Power deliver? I am sceptical.