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War fears abate…

Feb 15, 2003

It was a better week for US markets as both the Dow and NASDAQ managed to close in positive territory compared to last week. Dow gained marginally while the NASDAQ gained by over 2%. The week started on a positive note but the gains were restricted as investors seemed nervous before treasury secretary Alan Greenspan’s semi-annual remarks to both houses of Congress on the state of the U.S. economy and monetary policy. Tuesday was marked by further threats from the Al Qaeda leadership and poor earnings numbers announced by Applied Materials. Both these factors contributed to a fall of the US markets on Tuesday. Alan Greenspan’s address to the houses also failed to boost sentiments as the comments of the treasury secretary did not bring up any thing new or optimistic on the economy front. Wednesday saw the US market wipe out all the gains that had been seen on Monday. Heightened terrorist attack fears and Alan Greenspan’s warning against the economic bailout package at this current juncture disappointed investors. Thursday saw listless markets with the Dow and NASDAQ closing marginally in the red. US markets witnessed a rally of sorts on Friday with the Dow and NASDAQ gaining by over 2% yesterday. There was a feeling of relief among investors after the chief weapons inspector Hans Blix, stated that there is no clear evidence that Iraq has weapons of mass destruction. Good numbers that came in regarding the industrial production boosted sentiment further. Industrial production rose 0.7% in January after a 0.4% decline in December. Capacity utilization was also up to 76% in the first month of the year, a number that was slightly stronger than expected. Dell reported better than expected earnings numbers, which buoyed tech stocks. The uncertainty of a war with Iraq seems to have reduced for now, but with the US determined to go to war, investors may remain cautious going in to the next week.

Indices 8-Feb-03 15-Feb-03 Change
FTSE 3,599 3,612 0.4%
Nikkei 8,448 8,702 3.0%
BSE 3,280 3,223 -1.7%
Hang Seng 9,151 9,202 0.6%
NASDAQ 1,282 1,310 2.2%
Dow 7,864 7,909 0.6%
Dax 2,569 2,674 4.1%

Global indices closed in the positive for the week, as the fears of war reduced. The major gainers were the German Dax and the Japanese Nikkei. The German government is vehemently opposed to a war against Iraq and is pushing for a diplomatic solution for the current situation. Though the Japanese index gained during the current week, in the coming week, increased tensions with North Korea may take a toll on the same. The Indian BSE Sensex lost despite all the major global indices gaining, due to weakness in software stocks and certain index heavyweights. Software stocks were pushed down as it was reported that four more US states are contemplating on introducing legislation to stop the flow of call center and BPO business to countries offering cheap labour for these services like India.

(Price in US $) 8-Feb-03 15-Feb-03 Change
Satyam Infoway 3.6 3.5 -3.3%
ICICI Bank 6.7 7.0 4.2%
Dr. Reddy's 19.2 19.1 -0.8%
Wipro 30.2 29.2 -3.3%
VSNL 3.6 3.5 -4.2%
MTNL 4.4 4.4 0.7%
Infosys 68.1 65.1 -4.4%
Rediff 2.4 1.9 -22.1%
HDFC Bank 15.3 15.3 0.2%
Satyam 10.3 10.2 -1.4%
Silverline 0.6 0.5 -13.3%

Indian ADRs were weak despite the weekend rally seen on the US indices. The only major gainer for the week was ICICI Bank. Software ADRs were the main losers during the week due to increased uncertainty. The main concern here is that India software companies are likely to be hard hit if a war erupts as these companies depend a lot on services exported to the US. In case of a protracted war with Iraq the revenues of these companies may come under severe pressure. For the coming week too further weakness can be expected on these counters.

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