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US markets: Fog on the windscreen - Views on News from Equitymaster
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  • Apr 20, 2002

    US markets: Fog on the windscreen

    The result season seem to be sending out confusing signals for the US markets. The results dolled out so far from Corporate America has been a mixed bag. Markets however, cheered the fact that the results were better than expected and there were signs of improvement in the economy. However, fears over terrorist attack on the nations financial institutions kept sentiment low towards the fag end of the week.

    Microsoft cautious outlook and soft revenues disappointed investors. However, there was optimism was maintained as markets focused on improvement in operating income. Sun Microsystems results was another silver lining for the markets. The company reported lower than expected losses and maintained its stand of jumping back in profits by the end of next quarter.

    Top Eight US airlines reported another US$ 2.4 bn. of losses this week on top of 2001’s record of US$ 9 bn shortfall as air travel, although rebounding is still a shadow of its former self-following the September’11 attacks. The revenue contributions from the lucrative business class travelers are reducing fast with these travelers either preferring to fly less or by economy class.

    Amazon.com is expected to report earnings next week. Analysts expect the online superstore to end the quarter in red though it is expected to trim losses. Dell computers marched ahead during the week after the company forecasted to report higher revenues in the current quarter. Telecommunications stocks also recovered from the last week’s battering.

    Merrill Lynch stock remained range bound during the week. The company’s stock had fell last week as the company came under the probe of the New York State attorney’s scrutiny about the state of its Wall Street research.

    Economic data continued to signal steady but slow recovery in the economy. Though wholesale prices index rose by a percent, analysts opined that the rise was mainly on the back of higher energy prices. Back of the envelope calculations, indicated that GDP grew by an unsustainable 5% in the last three months. However, slower expansion in the US service sector hurt the market mood. This is mirrored in the non-manufacturing index, which fell to 57.3 in March from 58.7 in February.

    Cautious outlook continue
    (Price in $) 12-Apr-02 19-Apr-02 Change
    Dr. Reddy's 22.7 22.0 -3.1%
    MTNL 5.9 5.6 -5.1%
    Infosys 69.0 67.7 -1.9%
    HDFC Bank 15.3 15.3 0.0%
    Wipro 36.5 36.0 -1.4%
    ICICI 7.7 7.3 -5.2%
    Satyam 12.1 12.1 0.0%
    Rediff 1.1 1.1 0.0%
    VSNL 7.4 7.6 2.7%
    ICICI Bank 6.2 5.7 -8.1%
    Satyam Infoway 1.3 1.4 7.7%
    Silverline 1.8 1.8 0.0%

    Both ICICI and ICICI Bank fell over identification of higher NPA’s provisioning required ahead of the mega merger. ICICI is expected to provide for additional Rs 35 bn for NPA provisioning before it merges with ICICI Bank.

    Wipro’s ADR ended 10% lower mirroring the fall in the domestic markets. The company’s shares came under selling pressure after it declared yearly results. Though the results were more or less in line with market expectations, cautious outlook by the company for the coming quarter marred sentiment on the bourses. Infosys, another software major also came under selling pressure after a run up last week on the back of encouraging quarterly performance.

    War concerns cloud optimism
    Indices 12-Apr-02 19-Apr-02 Change
    Nikkei 10,963 11,512 5.0%
    BSE 3,511 3,364 -4.2%
    FTSE 5,161 5,244 1.6%
    Dow 10,190 10,257 0.7%
    Hang Sang 10,710 11,252 5.1%
    Dax 5,189 5,285 1.9%
    NASDAQ 1,756 1,797 2.3%

    Markets recovered during the week after concerns over Israel-Palestine conflict and consequent rise in crude oil prices cooled off, at least for a while. Markets also seem to be factoring the Fed’s clarification that interest rate are unlikely to be moved up. Having said that, concerns are being raised by certain section of participants over the probable jump in inflation, if interest rates are maintained at current low levels. The sentiment though has improved after the initial round of corporate results, the earnings have not been sufficient enough to fuel buoyancy in the market. In the absence of any triggers and clear indication on the direction of the economy, markets are expected to remain range bound in the near term.



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