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Negative news cast a shadow - Views on News from Equitymaster
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  • Jan 17, 2009

    Negative news cast a shadow

    The Indian stock markets saw plenty of volatility during the week. Some of the swings in the indices were lead by the spate of bad news hitting the IT sector. First, the World Bank made a statement that it had barred Wipro since June 2007 for four years on account of giving improper benefits to select employees of the bank. The latter part of the week saw North America's biggest telephone equipment maker Nortel Networks filing for bankruptcy. Companies like TCS, Wipro and Infosys were directly affected by this as Nortel was an important customer them.

    The European Central Bank (ECB) lowered its key interest rate by 0.5% to 2% during the week in an effort to avoid a deep recession. This is its fourth rate cut since last October. The ECB president has also indicated that further cuts are likely if the European region did not show signs of a recovery by March 2009. Recent economic data has shown that a number of countries in the 16-member Euro zone are already in recession, while others facing a severe economic downturn.

    Indian software majors Infosys and TCS announced their third quarter results during the week. They reported decent numbers despite the economic slowdown and uncertainty in the banking, financial services and insurance (BFSI) space. While Infosys registered a 7% QoQ growth in net sales, TCS grew 5% QoQ during 3QFY09. Their bottomlines grew by 15% QoQ and 7% QoQ respectively. Both the companies managed to improve their margins. While Infosys improved its margin by 2% QoQ, TCS improved its margin by 0.5% QoQ. We attended the conference calls of both the companies, where the managements indicated that they are cautious about the current environment and are prepared to face challenges going forward. They have also admitted the pricing pressure they are facing currently, which might worsen in the future.

    HDFC Bank, which also announced results this week, indicated pressure on operating costs and non performing assets.

    Both, world and Asian stocks took a beating during the week. Hong Kong saw the biggest loss in its indices with a decline of 7.8%, followed by Japan and Singapore witnessing declines of 6.8% and 4.2% respectively. A slacking of Japanese machinery orders and sharp dip in US retail sales renewed concerns that global recession is deepening. Incidentally, Indian stocks lost the least compared to their Asian peers in the week gone by, recouping some their losses towards the end of the week.

    Source: Yahoo Finance Source: Yahoo Finance

    Source: SEBI Source: BSE

    Source: BSE Source: BSE

    Movers and shakers during the week
    Company 9-Jan-09 16-Jan-09 Change 52-wk High/Low Change from 52-wk High
    Top gainers during the week (BSE-A Group)
    Jubilant Organosys 126 141 11.9% 391 /102 -64.0%
    Triveni Eng. 46 51 11.8% 174 / 30 -70.6%
    Mundra Port & SEZ 338 376 11.2% 1,070 / 250 -64.9%
    Balrampur Chini 49 54 10.5% 121 / 30 -55.6%
    Bajaj Auto 426 468 9.8% 0 / 0 NA
    Top losers during the week (BSE-A Group)
    Rolta India 113 87 -23.3% 360 / 42 -75.9%
    Sintex Industries 194 149 -23.2% 549 / 137 -72.9%
    Indiabulls Fin. Ser. 131 101 -22.5% 883 / 78 -88.5%
    Pantaloon 211 167 -20.9% 800 / 161 -79.1%
    Siemens 261 215 -17.6% 1,012 / 204 -78.8%
    Source: Equitymaster

    The negative economic data showing many of countries in the European Union as already in the midst of a severe economic downturn weighed heavy on the markets of the region. German indices lost the most and were down 8.7% during the week. France too was down about 8.6%. US stocks managed to fall the least during the week with a decline of 3.7%.

    The dollar weakening against the euro had the effect of increasing gold's attractiveness during the week; as the yellow metal rose by as much as 2.7% in the past five days.

    In a rare move, the world's largest software company, Microsoft Corporation is contemplating significant layoffs due to the decline in computer sales. It is believed that the announcement could come as early as next week itself. Most seem to be jittery of the fact that if one of the largest and steadiest companies in the world is having a tough time in managing its expenses, the situation is unlikely to be much better in other industries.

    That brought an end to another action filled week. On one end was the incessant stream of negative news pouring all over. On the other end, governments the world over were kept busy trying their level best to alleviate some of the problems by announcing rate cuts and executing bailouts.



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