VSNL shines among Indian ADRs - Views on News from Equitymaster

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VSNL shines among Indian ADRs

Feb 24, 2001

The sentiment in the NASDAQ in the last week was hit by a disappointing economic data and continued earnings warnings issued by the tech majors. The index slipped by 6.7% and touched a new 52-week low. During the week, list of companies including EMC Corp, Brocade Communications Systems, Sun Microsystems and Motorola forecasted depressing earnings outlook in the wake of slowing US economy. Tech counters witnessed a huge sell off with investors losing faith in sustaining their earnings growth. Even upbeat results from retail companies Wal-Mart Stores and Home Deport failed to boost the sentiment.

The key US consumer price index (CPI) showed a rise of 0.6% in January (0.2% in December). This has raised concerns that the Federal Reserve may not cut the interest rates in its next policy meeting. Nevertheless, tech stocks re-gained some of the lost points towards the end of week.

The slide continues
(Price in $)17-Feb-0124-Feb-01Change
Infosys108.5100.0-7.9%
Satyam Infoway5.44.6-14.0%
Rediff4.43.3-25.7%
Silverline10.58.2-21.8%
VSNL14.014.20.8%
ICICI Bank7.26.9-4.3%
ICICI12.711.9-6.6%
Wipro62.055.2-11.0%

Indian ADRs in general lost ground as the markets fretted about future earnings of technology stocks. Rediff, Sify and Silverline were the major losers.

Tech stocks also lost ground. Wipro was down by 11%. The company has bagged a five-year order worth US $7.5 million from the Scottish Parliament to provide IT support services and consultancy. The contract involves internal and external network management, systems administration, end user support, enterprise systems security, and providing consultancy on technology shifts.

Infosys was hit by a rumour that one of its major clients Nortel (telecom equipment maker), is re-negotiating contracts with the company. Almost all the key telecom stocks on the NASDAQ including Nortel hit their 52-week low on the back of bleak future earnings outlook. This has raised concerns about Infosys’ future growth prospects. However, up-gradation of rating on the company by a key investment banker on the last day of the trading session fueled a rally in the stock.

VSNL was only gainer among the Indian ADRs. Strong buying interest in the stock was after a buy recommendation from one of the key investment bankers. The earning forecast of the company has been raised on the back of strong international voice traffics. This business accounts for 90% of VSNL’s revenues. The company has been recently offered free entry into the domestic long distance (DLD) phone service market by the government to compensate for the loss of monopoly in international phone service. Its DLD business is expected to boost its earnings growth in future.

World market performance
Indices17-Feb-0124-Feb-01Change
NASDAQ2,4252,263-6.7%
Dow10,80010,442-3.3%
Hang Seng15,63015,281-2.2%
Nikkie13,17513,2460.5%
BSE4,3304,128-4.7%

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