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Global markets: India outperforms

Mar 6, 2004

After correcting sharply in the past week, Indian stock markets saw buying interest once again gaining ground. The benchmark indices like Sensex and Nifty gained 4.5% each this week. Against this backdrop, it is also pertinent to take a note of the performance of global markets.

The week gone by…
Index 26th Feb 2004 4th Mar 2004 Change (%)
Dow 10,580 10,588 0.1%
Nasdaq 2,033 2,055 1.1%
Nikkei 10,815 11,402 5.4%
Hang Seng 13,675 13,452 -1.6%
BSE Sensex 5,567 5,816 4.5%
NSE Nifty 1,766 1,844 4.4%

As can be seen from the table above, barring Nikkei (Japan), all other global markets exhibited weakness this week. We have considered Thursday of the last week to Thursday of this week for our analysis. First, the US stock markets. One of the most awaited reports during the week was the number of jobless claims (the number of people who claim to be unemployed). Compared to 352,000 claims in the previous week, this number came down to 345,000, which was a positive news for the markets. However, over the last four weeks, there was a marginal fall in jobless claims.

It is important to note that the growth of the US economy is highly dependent on consumer spending, which in turn is a function of employment generation. One of the key reasons why the US economy has been reeling under pressure in the last three years is due to large-scale retrenchments post the September 11 attacks and the technology meltdown. Just to put things in perspective, according the statistics, more than 2 m people have lost jobs since the technology meltdown. With demand failing to meet supply, corporates were to forced to reduce workforce and this was further accentuated by higher inventory with manufacturers. In this backdrop, the unemployment rate and jobless claims are actively followed indices to gauge the prospects of the economy.

Another important news during the week was that Intel, the world's largest chip maker, warned of a slower growth in chip sales for the first quarter of the calendar year 2004. Since chips and microprocessors are believed to be key indicators of recovery in technology spending, the announcement by Intel is of significance. Having said that, in an recent interview with Equitymaster, Mr. Ajit Dayal, CIO, Hansberger Global Investors opined that "Job shedding has stopped, which is a good sign. The job creation is continuing and as I said, cycles take time to play out and you have to wait patiently for it. In the next phase, probably by the middle of this calendar year, there will be job creation in a fairly significant manner in the US and other economies". Click here to read the interview.

However, Nikkei 225 (Japan) gained sharply during the week. One of the key factors that is attributed to the recent rise in Nikkei is the fact that the economy, after more than a decade of slump, seem to be showing signs of an upturn. Just to put things in perspective, industrial production in Japan is estimated to have increased by 14% in the ten month period from April 2003 to January this year. However, the financial sector continues to suffer from high non-performing assets, which is a cause of concern.

Considering the week's performance, what is ahead for the Indian stock markets? On a relative basis, India continues to remain an attractive investment destination for the long-term. Despite the rally that we have seen over the last one year or so, the NSE Nifty is trading at 16x trailing twelve months earnings. However, retail investors have to keep factors like forthcoming elections, performance of companies failing to meet investor expectations and the global economic environment and its consequent impact on the money flow into the Indian stock markets in mind.


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