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US Markets: Uncertainty continues

Apr 27, 2002

Even as the US economy continued to show strong signs of recovery, investors despaired weak corporate results. Both the NASDAQ and Dow ended the week with heavy losses. The result season from Corporate Inc has not been very encouraging with AOL Time Warner posting biggest ever-quarterly loss posted in the corporate history. AOL Time Warner Inc, the world’s largest Internet and media company posted US$ 54.2 bn net loss, the largest ever US quarterly net loss, after taking a whopping charge for accounting changes. The loss was mainly on account of US$ 54 bn charge, to write off goodwill inline with accounting changes to reflect the sharp decline in the value of US$ 106 bn purchase of Time Warner in 2000. Revenues however, grew 4% on account of strength in its cable systems and film business. The company’s shares ended the week 8% lower. With this, shares of AOL Time Warner have recorded more than 70% erosion in value since the deal to buy Time Warner.

AT&T Corp, the No. 1 US long distance telephone and Cable Television Company posted lower than expected results with a wider net loss. Revenues fell more than 11% on the back of increasing competition both from its long distance rivals and wireless telephones, where consumers are making a fast shift.

Breaking out of the doldrums, the economy grew in the first quarter at a 5.8 percent annual rate, its strongest performance in more than two years and proof positive that last year's recession is history. The recovery comes after the gross domestic product — the broadest measure of the economy's health — turned in six below-par quarters as companies throttled back production, let go of workers and saw profits plunge

Economic data showed surprising signs of a strong bounce back with the economy logging a 5.8% growth in GDP, the strongest ever performance in more than two years. The wholesale prices index continued with the upward movement. Investors are wary that wholesale prices might translate into higher inflation and compelling the interest rates to move higher.

IT in red
(Price in $) 20-Apr-02 27-Apr-02 Change
Dr. Reddy's 22.0 22.4 1.8%
MTNL 5.6 6.0 7.1%
Infosys 67.7 62.0 -8.4%
HDFC Bank 15.3 15.1 -1.3%
Wipro 36.0 33.0 -8.3%
ICICI 7.3 6.6 -9.6%
Satyam 12.1 11.4 -5.8%
Rediff 1.1 0.8 -27.3%
VSNL 7.6 7.6 0.0%
ICICI Bank 5.7 5.1 -10.5%
Satyam Infoway 1.4 1.3 -7.1%
Silverline 1.8 1.7 -5.6%

All the Indian IT ADR;s ended heavily in the red after lower earnings guidance issued by most of these companies. Satyam Computers issued a revenue guidance of 23-25% topline, which was lower than market expectations. Satyam Infoway also ended lower on the disappointment over uncertainty on its proposed stake sale.

Both ICICI and ICICI Bank also fell heavily ahead of the green signal given by RBI for the proposed merger. There are concerns 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.

Dow slips below 10,000
Indices 20-Apr-02 27-Apr-02 Change
Nikkei 11,512 11,541 0.3%
BSE 3,364 3,372 0.2%
FTSE 5,244 5,159 -1.6%
Dow 10,257 9,911 -3.4%
Hang Sang 11,252 11,385 1.2%
Dax 5,285 5,000 -5.4%
NASDAQ 1,797 1,664 -7.4%

Markets continue to remain confused over the direction going forward. While there is a strong silver lining of a sharp economic recovery, market participants seem to wait and watch before clear signals emerge. 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. 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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