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War fears cloud sentiment

Feb 8, 2003

While the economic data that poured in during the week, pointed to improving prospects, the impending war with Iraq and threats of a high-risk attack on New York took a toll on the nerves. Consequently, both the Dow and the NASDAQ closed with losses for the week. While the Nasdaq shed 2.9% during the weeks trading, the losses on the NYSE were lower at 2.4%. The markets opened on a positive note on Monday. News of the manufacturing sector posting growth for the month of January helped sentiments improve. Also, selling in the previous weeks had pushed stocks to attractive valuations. As a result, investors moved in to pick up stocks at lower levels. However, on Tuesday ahead of Mr. Collin Powell's address to the UN Security Council, the bourses in the US turned nervous and there was an across the board sell off. Even Cisco's beating the street's expectations on the earnings front did not help the markets. Though the 'box' maker's numbers came in better than expected, the company's cautious outlook for the future failed to lift spirits.

Despite the US Secretary of State failing to budge the war skeptics, Germany and France, the markets in the US closed with marginal declines on Wednesday. Ideally, Mr. Powell's failure, which effectively postpones the war with Iraq should have lifted sprits. The markets continued to be concerned about the possibility of the US-Iraq war and Thursday too saw the Dow closing the red. The Nasdaq, however, closed at Wednesday's levels. Friday saw positive economic data coming in. According to the Labor Department, the unemployment rate slipped to 5.7% in January. This was below expectations of the figure being around 6% in line with December's numbers. Also, the number of new jobs created in the month of January was almost double compared to the expectations. The markets reacted positively, to the news and had gained in the early hours of trading. However, the party was spoilt as the U.S. Government officials raised the national terror threat level to high risk from an elevated risk. This caused nervousness on the bourses and both the Dow and the Nasdaq closed in the red.

(Price in US $) 1-Feb-03 7-Feb-03 Change
Satyam Infoway 3.6 3.6 0.0%
ICICI Bank 7.0 6.7 -4.3%
Dr Reddy's 18.7 19.2 2.7%
Wipro 29.0 30.2 4.1%
VSNL 3.6 3.6 0.0%
MTNL 4.6 4.4 -4.3%
Infosys 65.0 68.1 4.8%
Rediff 2.1 2.4 14.3%
HDFC Bank 15.0 15.3 2.0%
Satyam 10.2 10.3 1.0%
Silverline 0.6 0.6 0.0%

Among the Indian ADRs, the technology group figured in the list of gainers. The markets have been concerned about the impact of a possible war between US and Iraq on the Indian IT sector . If the war does take place the business sentiment in the US might take a hit and therefore, the corporate IT budgets. The Indian IT services companies have run up in the recent past due to increased interest in offshore model by western corporates and expectation of large outsourcing contracts being awarded to the Indian IT services companies. The gainers list included Satyam, Infosys and Wipro. Rediff gained a significant 14% during the week trading. From the telecom sector, VSNL closed at previous weeks levels, while MTNL continued to witness profit taking post the significant buying interest seen in previous trading sessions. The banking ADRs had mixed fortunes, HDFC Bank closed with marginal gains, while ICICI Bank fell prey to profit taking.

Indices 1-Feb-03 7-Feb-03 Change
FTSE 3,567 3,599 0.9%
Nikkei 8,340 8,448 1.3%
BSE 3,250 3,280 0.9%
Hang Seng 9,259 9,151 -1.2%
NASDAQ 1,321 1,282 -2.9%
Dow 8,054 7,864 -2.4%
Dax 2,747 2,569 -6.5%

The war fears will continue to dominate the activity on the bourses and therefore, any gains of the back of positive news is likely to be capped. The increased security threat will also make investors nervous. Thus, the Dow and the NASDAQ are more likely than not post another week of losses. However, if the stand off continues the losses could be limited. Among the global indices, Nekkei with gains of 1.3% was the top gainer, while the German markets lost 6.5% during the week.

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