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Accounting practices cast shadow - Views on News from Equitymaster
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  • Feb 16, 2002

    Accounting practices cast shadow

    Lingering fears of improper accounting practices continued to worry the US markets. Dismal earnings report from corporates and unimpressive economic data further contributed to cautious sentiment. Fears of possible attacks on the US also kept the markets under pressure.

    The week began with Nortelís warning of lower revenue growth in the coming quarters. Its CEO has been allegedly trading in the companyís stock. IBM also came under scrutiny on suspicions that the company had not disclosed US$ 300 m gains on the sale of an optical unit. It was this gain, which enabled IBM meet fourth quarter earnings estimate. Dell, the No. 1 PC maker, reported a YoY 7% fall in fourth quarter revenues and a 10% decline in earnings. The company expects industry wide shipments to drop by 10% sequentially in the current quarter and a 3% - 5% fall in its revenues.

    Positive news from Applied Material and Hewlett Packard (HP) failed to cheer the markets. Applied Materials indicated that semiconductor revenues have reached a bottom and memory chips prices have risen. HP also reported better than expected earnings in the fourth quarter.

    Economic data offered little relief to the markets. Output at the US factories fell by 0.1% in January its sixth straight drop. Capacity utilization at 74.2% was also the lowest since April 1983. After four consecutive month of rise, consumer sentiment index too fell to 90.9 in February (month to data) from 93 in January. This dismal data raised concerns about the expected revival in the economy. Upbeat sales report (gains of 1.2% in January 2001), fall in jobless claims and decline in US business inventories, for the 11th straight month raised hopes of an improvement in labour market conditions and consumer demand.

    ICICI group leads the pack
    Price in $) 9-Feb-02 16-Feb-02 Change
    ICICI Bank 4.1 6.3 52.4%
    ICICI 5.6 7.6 36.0%
    Silverline 2.3 2.7 15.2%
    MTNL 6.6 7.4 12.1%
    VSNL 6.6 7.3 10.5%
    Wipro 35.0 36.0 2.9%
    HDFC Bank 15.1 15.5 2.4%
    Rediff 1.3 1.3 2.3%
    Satyam 13.0 13.1 0.2%
    Satyam Infoway 1.9 1.9 0.0%
    Infosys 57.7 56.5 -2.1%
    Dr. Reddy's 21.0 20.0 -4.8%

    Indian ADRs outperformed the US markets and flared up sharply. ICICI group and PSU telecom stocks were in demand. Frontline tech stocks in general remained under pressure in line with the NASDAQ trend.

    The rally in ICICI group was sparked on speculations that ICICI would be selling its stake in the proposed special purpose vehicle (SPV) to be set up consequent to its merger with ICICI Bank. The SPV will hold ICICI's stake of 16% in the merged entity. The stake sale is expected to bring in Rs 12 bn to the financial institution, which it could utilize in writing off bad loans. Also, expectations about increase in foreign investment limit in the banking sector from the current 49% to 74% infused buying interest. Foreign investments in ICICI and ICICI Bank currently stand at 48% and 45% respectively.

    After VSNLís disinvesment to the Tataís, investors turned positive about MTNL. Although, the government has indicated to sell part of its stake in MTNL, it is yet to indicate a time frame for the disinvestment.

    Asian markets rebound
    Indices 9-Feb-02 16-Feb-02 Change
    Hang Seng 10,519 10,962 4.2%
    Nikkei 9,686 10,048 3.7%
    BSE 3,494 3,602 3.1%
    Dow 9,744 9,903 1.6%
    FTSE 5,128 5,183 1.1%
    Dax 4,836 4,863 0.6%
    NASDAQ 1,819 1,805 -0.8%

    The sentiment on the Wall Street is mired by worries about potential accounting blow-ups. Mixed news from economy is further confusing the markets, which are waiting for a revival in the economy.



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    Aug 23, 2017 01:50 PM