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Interest rate concerns cloud sentiment

Mar 23, 2002

The rally in the US market came to a halt this week as concerns over rise in interest rates outweighed bullishness in economic turnaround. Though the Fed meeting last week kept the interest rate untouched, it indicated a possibility of rise in interest rates. Rising crude prices added to the concerns. For the Dow it was the first losing week after ending in positive for five consecutive rises. The airlines industry, which was dumped by investors post September, seems to be receiving new lease of life. While air reservations are surging, aircraft maker Boeing fuelled optimism over expectation of US$ 9.7 bn defense orders. However, rising crude oil prices acted as a dampener for airline stocks.

Moody’s downgrade for Lucent added concerns over recovery in the telecom industry. Lucent had earlier indicated that it expects to make profits only in fiscal 2003. McDonalds and Nike were amongst the other majors to issue profit warning during the week.

Meanwhile, economic data continued to be positive with both jobless claims reducing and consumer index inching higher. Retail sales were however, slack with a marginal rise of 0.3% in February, much below 0.9% forecasted by economists.

Rediff beats the trend
(Price in $) 15-Mar-02 22-Mar-02 Change
MTNL 6.3 6.0 -4.0%
Silverline 2.5 2.2 -12.0%
VSNL 7.1 7.1 0.7%
Satyam Infoway 1.7 1.6 -5.3%
ICICI 8.0 7.9 -1.3%
Dr. Reddy's 22.0 21.7 -1.4%
Satyam 13.2 12.6 -4.2%
Wipro 39.8 38.5 -3.4%
ICICI Bank 6.2 6.2 0.2%
HDFC Bank 15.7 15.7 0.2%
Infosys 64.6 64.9 0.5%
Rediff 1.2 1.2 3.4%

Indian ADR’s, particularly technology stocks, were on the receiving end mirroring the general trend on the NASDAQ. Silverline, Satyam and Wipro were the biggest losers. However, Rediff was the sole gainer during the week with a 3.4% rise. Last week the company forecasted an upbeat financial outlook for the March quarter. Rediff is expecting operating loss in the range of US$ 0.7 m – US$ 0.8 m for the March quarter, lower than US$ 1.6 m posted in the December quarter.

In a major telecom breakthrough, the Indian government deregulated Internet telephony starting April’02 as per its schedule. Even after a 50% reduction in tariffs last year, international telephony rates are relatively higher in India. Internet telephony is thus expected to prove detrimental to VSNL’s revenues. Meanwhile Bharti, the biggest competitor for VSNL, has slashed international telephony rates by almost 50%. VSNL’s ADR ended flat during the week.

Global markets, cash in profits
Indices 15-Mar-02 22-Mar-02 Change
Dax 5,401 5,366 -0.6%
Dow 10,607 10,428 -1.7%
FTSE 5,293 5,251 -0.8%
Hang Sang 11,210 10,863 -3.1%
BSE 3,618 3,516 -2.8%
Nikkei 11,648 11,345 -2.6%
NASDAQ 1,868 1,851 -0.9%

The markets globally took a breather after having run up sharply in the last fortnight. Even though, the US economy is showing signs of a turnaround, business activity is likely to rise gradually. In the short term, crude oil prices, interest rate movements and outlook from companies would drive market sentiment.

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