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US markets: Eyeing trigger

Feb 9, 2002

It was one of the worst weeks for the US markets with Cisco’s grim forecast and fears of rising bankruptcies, which undermined investor confidence. Stocks of diversified conglomerates crashed on concerns about accuracy of corporate financial statements after the Enron issue. Corporate earnings news offered no relief to the markets looking for a trigger. Early during the week, Tyco Inc. indicated that it had spent US$ 8 bn on more than 700 acquisitions that were never announced publicly. Sprint, the No. 3 US long distance telephone company reported fourth quarter loss of US$ 1.2 bn. The company also forecasted 2002 profits lower than its earlier expectations. Cisco’s quarterly profits more than halved to US$ 664 m on a YoY basis. But on a sequential basis its profits doubled from US$ 332 m in the previous quarter. The company indicated flat revenue growth in the third quarter and cautious outlook on demand revival. On the positive side, Hewlett Packard expected first quarter earnings and revenues to beat forecasts due to rise in PC demand. Corning too forecasted, first quarter results in line with market expectations.

While the NASDAQ lost 5%, the losses in Dow was curtailed by strong sales reports from Wal-Mart and other retailers. Wal-Mart posted a rise of 8.3% in January sales and indicated revenue growth at the upper end of 4%-6% for 2002.

News from economy was mixed. The growth in US service sector stalled in January casting doubts on revival in the economy. The non-manufacturing index declined to 49.6 in January from 50.1 in December. On the positive side, orders for manufactured goods rose by 1.2% in December after a revised 4.3% decline in the previous month. The rise in demand was lifted by transportation and military orders. Jobless claims also declined by 15,000 to 376,000 in the previous week. Initial claims have remained below the key 400,000 levels for five straight weeks.

MTNL: Star performer
Price in $) 2-Feb-02 9-Feb-02 Change
MTNL 5.3 6.6 25.70%
Rediff 1.1 1.3 16.10%
ICICI Bank 4.1 4.1 1.20%
Dr. Reddy's 20.8 21 0.80%
HDFC Bank 15.1 15.1 0.30%
Wipro 35 35 0.10%
ICICI 5.7 5.6 -1.10%
Silverline 2.4 2.3 -2.10%
Infosys 59.9 57.7 -3.60%
VSNL 7 6.6 -5.40%
Satyam Infoway 2.1 1.9 -12.70%

Divestment of VSNL sparked strong buying interest in public sector telecom major, MTNL. The stock soared by 26% over a week after having remained dull since it was listed on NYSE in November 2001.

VSNL on the other hand declined by 5% on news of divestment. The government sold its 25% stake in the company to Tata group for Rs 202 per share (total consideration Rs 14.4 bn). This stake sale will bring down the government’s holdings in VSNL to 26% from 53%. The markets seem to be unhappy with the price at which Tata’s bought the stake in the company. The stock attracted substantial volumes of over 1 m, for the first time.

Infosys ended lower after the company indicated a flat growth in US IT outsourcing budgets in 2002. Satyam, on the other hand, shone on its announcement of entering into enterprise application solution partnership with the US based Sagent. Sagent will leverage Satyam's application development expertise to deliver analytics for ERP, CRM, and SCM systems. Satyam will expand its service practice by incorporating Sagent’s technologies in its IT solution offerings for the finance, banking, insurance and retail industries.

BSE: The PSU effect
Indices 2-Feb-02 9-Feb-02 Change
BSE 3,334 3,494 4.80%
Nikkei 9,791 9,686 -1.10%
FTSE 5,190 5,128 -1.20%
Hang Sang 10,691 10,519 -1.60%
Dow 9,907 9,744 -1.60%
NASDAQ 1,911 1,819 -4.80%
Dax 5,097 4,836 -5.10%

Earnings season has almost ended on the Wall Street, impacting the market sentiment. The NASDAQ ended below 1,900 mark and the Dow is lingering around 9,700. Mixed news from the economy is not providing any trend to the markets, which are waiting for a turnaround. If this was not enough, accounting irregularities are worrying the markets already lacking confidence.

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