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Rediff in focus - Views on News from Equitymaster
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  • Mar 24, 2001

    Rediff in focus

    The sun came out on the US markets after a dismal week. The NASDAQ gained 2% over a week. Tech stocks rose strongly pushing the NASDAQ and Dow away from bear market territory. Optimism in the markets seems to be on an upswing on bargain hunting by investor in frontline tech stocks.

    Early during the week, the Fed Chairman disappointed the markets by announcing a cut of 50 basis points in interest rates. The investors were expecting a reduction of 75 basis points, which led to a wide spread sell off in the markets. The Fed has cut interest rates three times in 2001, to fuel the slowing economic growth by lowering borrowing costs for the companies.

    The surprise rise in inflation figures further dampened investor hopes for a near term interest rate cut by the Fed. Consumer Price Index (CPI) in February grew 0.3% exceeding an expected rise of 0.2%. The core CPI rate (excluding food and energy prices) also rose 0.3%.

    The spate of earning warnings continued this week. 3Com Corp. (networking equipment maker) reported a loss, which was higher than expected on the back of downturn in the telecom sector. Corning too trimmed its 2001 earnings outlook and forecasted lower sale growth. Motorola announced slashing off further 4,000 jobs (so far it has announced 22,000 job cuts) because of the slowing US economy.

    Rediff gains
    (Price in $) 17-Mar-01 24-Mar-01 Change
    Rediff 3.1 3.3 6.1%
    Satyam Infoway 3.0 3.1 4.2%
    VSNL 12.5 12.2 -2.2%
    Silverline 4.0 3.9 -2.7%
    ICICI Bank 7.2 6.9 -3.6%
    Infosys 71.0 68.3 -3.9%
    ICICI 11.7 11.1 -5.1%
    Wipro 36.3 31.6 -12.8%

    Indian ADRs continued their downward journey even as the overall markets got a lift. Save for the Internet stocks Rediff and Sify, the ADRs witnessed a large sell-off.

    Rediff was up by more than 6% over a week. This was on its announcement to acquire the two US based companies, Value Communication Corporation and India Abroad Publication. It has also decided to make a strategic investment in Apnaloan.com India Pvt. Ltd. These acquisitions are expected to consolidate its leadership position and would help the company in diversifying its revenues streams. Value Communication Corp. has a user base of about 45,000 with revenues of over US $13 m. The company focuses on the Internet based marketing of international phone services to the Indians in the US. On the other hand India Abroad Publications has a circulation base of about 65,000 with revenues base of US $ 7 m.

    Wipro was the major loser. This was after a downgrade rating by several foreign broking houses on the tech sector. The company is now trading at a discount of 23% compared to its issue price and a marginal premium of 5% compared to domestic price.

    The mixed trend in the markets illustrates that the worries are not yet solved. Earnings outlook for the next six months is cloudy and investors have a little faith in the policy makers to cut rates aggressively. Also, the slowing Asian markets might affect profits of the US companies.

    Nikkei stands out
    Indices 17-Mar-01 24-Mar-01 Change
    NASDAQ 1,891 1,929 2.0%
    Dow 9,823 9,505 -3.2%
    Hang Seng 13,522 12,583 -6.9%
    Nikkei 12,233 13,215 8.0%
    BSE 3,746 3,635 -2.9%



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