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War concerns US markets - Views on News from Equitymaster
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  • Apr 6, 2002

    War concerns US markets

    The trend in the US markets continued to remain subdued for the second consecutive fortnight. Crude oil prices soared to a six-month peak on increasing violence in Gaza Strip. This increased fears that a widening war in the oil rich region could cut oil supplies and impede the US economic recovery. Tech warnings also pulled down the NASDAQ below 1,800.

    Early during the week, leading investment bankers lowered their earnings estimates for tech majors including Sun Microsystems and Microsoft. Check Point Software and McData indicated that quarterly results are likely to miss expectations. The markets ignored positive news from Dell, which forecasted to report higher revenues in the current quarter. Losses in the Dow was trimmed by upbeat remark from diversified manufacturer 3M. The company’s quarterly earnings are likely to surpass its earlier expectations on the back of aggressive cost cutting.

    Economic data reflected some strength. Construction spending in the US jumped by 1.1% in February, it’s strongest pace since February 2001. New orders for durable goods rose by 1.8% in February. This was higher than a 1.6% rise recorded in January, implying the factory sector is regaining strength. Slower expansion in the US service sector however, hurt the market mood. This is mirrored in the non-manufacturing index, which fell to 57.3 in March from 58.7 in February.

    Tech weakens further
    (Price in $) 30-Mar-02 6-Apr-02 Change
    Dr. Reddy's 22.1 23.0 3.8%
    MTNL 6.0 6.2 3.4%
    Infosys 65.5 66.4 1.3%
    HDFC Bank 15.4 15.3 -0.7%
    Wipro 37.2 36.7 -1.6%
    ICICI 8.1 7.8 -3.4%
    Satyam 12.5 12.1 -3.5%
    Rediff 1.3 1.2 -4.0%
    VSNL 7.9 7.3 -6.8%
    ICICI Bank 6.5 6.1 -7.1%
    Satyam Infoway 1.6 1.4 -12.2%
    Silverline 2.2 1.9 -13.0%

    Indian tech ADRs failed to attract buying interest. Silverline and Sify were the major losers. Finance sector was also out of demand. Selective defensive counters were however, holding ground.

    MTNL gained over 3% during the week. The company is expected to generate higher revenue growth on the back of a significant rate cut in domestic long distance telephone charges. The company has also indicated to set up 1,000-seat call centers in two major cities, Mumbai and Delhi. MTNL will transfer excess employees to these call centers, which would improve its productivity and save employee cost.

    Dr. Reddy’s also accumulated strong gains. The company filed an application to manufacture a generic version of Plavix, a blood thinning treatment drug of Sanofi, France. The patent for this world-leading drug would expire in 2003. Sanofi has however, filed a court case against Dr. Reddy’s, alleging infringement of the patents covering Plavix.

    ICICI tumbled after RBI indicated that no further purchases by foreign investors could be made in the scrip. Total FII holding in ICICI has reached the overall ceiling of 49% of which 32% constitutes ADR holders. ICICI Bank also ended lower by 7%.

    War clouds global markets
    Indices 30-Mar-02 6-Apr-02 Change
    Nikkei 11,025 11,335 2.8%
    BSE 3,469 3,501 0.9%
    FTSE 5,272 5,234 -0.7%
    Dow 10,404 10,272 -1.3%
    Hang Sang 11,033 10,831 -1.8%
    Dax 5,397 5,261 -2.5%
    NASDAQ 1,858 1,770 -4.8%

    Mounting concerns of Israel-Palestine conflict has weakened market sentiment globally. This is also reflected from gold prices, which touched two years high. Amidst prevailing uncertainty in the capital markets, investors have opted to go for safe bet (gold). The near term outlook for the US markets is likely to get influenced by quarterly forecast from companies.



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