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US markets cheer economic data - Views on News from Equitymaster
 
 
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  • Mar 2, 2002

    US markets cheer economic data

    The US markets broke the string of losses recorded in the last few weeks on upbeat news on the economy. Corporate earnings outlook too helped in pushing up the key indices. The Dow crossed the 10,000 mark and the NASDAQ ended above 1,800 levels.

    Economic data continued to show mixed picture. Sales of US existing homes soared by a record 16.2% in January to 6 m units, due to change in consumer confidence. On the other hand, sales of new US homes plunged by 14.8% in January, its biggest decline in the last eight years. This news came as a setback for the resilient housing sector. Factory production rose for the first time in February after having remained subdued since July 2000. Consumer confidence index meanwhile, fell to 94.1 in February (97.8 in January), its lowest level since November. These data to an extent reaffirms the Fed Chairman’s cautious outlook on the US economic recovery. The Central bank indicated that the US recession is near to end but warned that the recovery would be moderate. The Fed also projected GDP growth of 2.5% - 3% in the current year, which would mark a sharp improvement from a marginal 1.1% growth recorded in 2001.

    Corporate earnings outlook to an extent indicated signs of recovery in the US economy. General Motors raised its earnings estimate for the first quarter and full year. The company expects better than expected sales volumes in the US. Qualcomm too reported better than expected demand for its cell phone chips. PC maker, Gateway Inc., expects to report a pretax loss for the year but aims to return to profitability in 2003. AT&T and Oracle, on the other hand, warned of a slower revenue growth in the current quarter.

    Dr. Reddy’s outperforms
    (Price in $) 23-Feb-02 2-Mar-02 Change
    Dr. Reddy's 21.0 22.5 7.1%
    VSNL 6.8 7.1 4.6%
    Wipro 37.0 38.0 2.6%
    MTNL 6.3 6.3 0.3%
    Infosys 56.8 56.7 -0.2%
    Satyam 12.4 12.1 -2.6%
    Satyam Infoway 1.7 1.6 -5.3%
    HDFC Bank 17.0 16.0 -5.8%
    Rediff 1.3 1.2 -6.3%
    ICICI 8.3 7.7 -7.2%
    ICICI Bank 6.8 6.2 -8.9%
    Silverline 2.6 2.2 -13.7%

    Dr. Reddy’s was the star performer among the Indian ADRs. Tech ADRs gained selective buying interest. Banking and finance stocks witnessed stiff selling pressure early during the week. However, recovered part of their losses on the last two trading sessions of the week.

    The pharma major, Dr. Reddy’s gained 7% on speculation that the company might get generic marketing approval for Amlodipine, which is the generic version of Pfizer’s blockbuster cardiovascular product, Norvasc. The market size of the molecule is in excess of US$ 1.5 bn.

    As per the latest Indian budget, software companies are required to pay tax on 10% of exports in the coming year. Higher tax payment would reduce cash flow and earnings of these companies to an extent. Most of the software stocks witnessed selling pressure after this announcement.

    Wipro however, managed to accumulate some points. The company announced an agreement with Sun Microsystems and Ximian Inc. to jointly develop an open source desktop environment for Solaris software users. This will allow the users to seamlessly integrate their workstations with Wipro’s proven methodology. The company is also to develop total networking solutions based on Intel’s network processors.

    ICICI and ICICI Bank were the largest losers. These stocks soared sharply in the previous week on rumours that ICICI is interested in selling its stake in the bank. ICICI group companies however attracted strong buying interest towards the fag end of the week on the back of banking sector reforms announced in the budget. Also a rate cut on administered instruments (PPF and NSC) and more tax deductions for making higher provisions for bad loans infused optimism for stocks.

    US markets rebounds
    Indices 23-Feb-02 2-Mar-02 Change
    Dax 4,746 5,097 7.4%
    NASDAQ 1,725 1,803 4.5%
    Nikkei 10,357 10,812 4.4%
    Dow 9,968 10,369 4.0%
    FTSE 5,051 5,169 2.3%
    BSE 3,604 3,679 2.1%
    Hang Sang 10,665 10,425 -2.2%

    Markets world over witnessed a sharp turnaround in the previous week. US economy is showing a sign of recovery from the better than expected production data, rise in consumer spending and corporate earnings outlook in the coming quarter. Even though stocks are trading at attractive price, improvement in valuations could come once companies start reporting rise in demand and consequently growth in revenues.

     

     

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