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War brings cheer - Views on News from Equitymaster
 
 
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  • Mar 22, 2003

    War brings cheer

    ”The markets can remain irrational longer than you can remain solved” said John Maynard Keynes. Irrationality of the bourses was once again of the forefront the US bourses closed with gains of 8.6% and 6% during the week that the US attacked Iraq. Infact the Dow posted its best performance since November 1996. The explanation is investors are happy bout uncertainty regarding the war ending and are expecting the conflict to end quickly. While this is a likely outcome, war is not exactly the time to choose equities as an investment option.

    On Monday, the Dow closed with gains of 272 points (3.8%) as war seemed imminent. The Nasdaq was up 3.5%. Interestingly, technology stocks gained on hopes of a turnaround in the technology sector. On Monday night President Bush, gave Mr. Hussein 48 hours to leave Iraq. Tuesday saw markets continuing to rise, thanks to America belligerent stand.

    Infact the geopolitical concerns weighed so heavily on the minds of the investors that the markets barely reacted to the Federal Reserve meeting on Tuesday. The Fed observed that prospects of the US economy continued to be uncertain. Post the meeting the markets are speculating on the possibility of a rate cut. This could take place before the next Fed meeting. Oracle’s earnings came in better than expected on Tuesday. However, the sluggish sales outlook given by the company concerned the markets. On Wednesday too the Dow gained. However, the Nasdaq closed marginally in the red. The markets gained on Thursday even as the US-Iraq conflict became a reality. And on Friday, the Dow jumped by 235 points on the back it significant advance made by the allied forces.

    Technology leading the way
    (Price in US $) 15-Mar-03 22-Mar-03 Change
    Satyam Infoway 3.4 3.7 7.6%
    ICICI Bank 6.7 6.7 1.0%
    Dr. Reddy's 18.3 19.3 5.8%
    Wipro 28.4 31.5 11.1%
    VSNL 3.3 3.3 -0.6%
    MTNL 4.2 4.1 -1.2%
    Infosys 58.5 67.2 14.8%
    Rediff 2.1 2.3 10.0%
    HDFC Bank 15.2 15.7 3.3%
    Satyam 9.5 9.9 4.6%
    Silverline 0.4 1.8 386.5%

    Among the Indian ADR’s, those from the technology sector topped the list of gainers. The markets were concerned by business flow to IT services companies being hurt in wake of a long draw war. However, with significant gains already made by the allied forces it seems unlikely that he conflict will have a sizable impact of on the earnings of the Indian IT services companies. Also, these stocks had taken a beating in the recent past. Therefore, on the back of fears allayed and attractive valuations technology stocks surged ahead. Only the ADR’s from the telecom sector closed in the red for the week. The intense competition, which has led to realisations plummeting, could be driving the negative outlook towards telecom stocks.

    Indices 15-Mar-03 22-Mar-03 Change
    FTSE 3,602 3,861 7.2%
    Nikkei 8,003 8,003 0.0%
    BSE 3,108 3,218 3.5%
    Hang Seng 8,956 9,179 2.5%
    NASDAQ 1,340 1,422 6.1%
    Dow 7,860 8,522 8.4%
    Dax 2,403 2,715 13.0%

    The European markets were the most prominent gainers during the week. Investors were back buying equities on expectations of short war. However, considering the dangers involved, it might be a bumpy ride ahead for the bourses ahead.

     

     

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