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Global markets: Positive undercurrent

May 3, 2003

Investor confidence in the US market regained this week on expectation of better economy numbers and improved quarterly results from America Inc. The Dow gained 3.3% while NASDAQ moved up at a faster rate (5%) in the 5 trading sessions. This week started on a positive note with better earnings reports from McDonald's and P&G. Investor confidence further remained higher on Tuesday with the release of consumer confidence index, which was much better than the last month's figures. US markets however, traded weak in the next two trading sessions. The cautious sentiment however, did not last long. Better than expected unemployment numbers brought some sigh of relief to the investors. Now since the corporate earnings season is nearing its end, the investor focus is likely to shift towards the economy.

(Price in US $)26-Apr-033-May-03Change
Satyam Infoway4.54.86.6%
ICICI Bank5.95.7-2.7%
Dr. Reddy's19.218.8-2.4%
HDFC Bank16.516.5-0.3%

The outperformance of Nasdaq could also be attributed to the fact that top rung tech majors like IBM and HP were in the reckoning. Reports of a possible takeover of Sun Microsystems fuelled this buying spree. However, since both IBM and HP are in the process of restructuring their core operations (IBM's acquisition of consulting division of PricewaterhourseCoopers and HP's takeover of Compaq are yet to be completely integrated), some section of the markets shrugged off the takeover news.

FTSE 3,870 3,953 2.1%
Nikkei 7,700 7,907 2.7%
BSE 2,924 2,967 1.5%
Hang Seng 8,409 8,808 4.7%
NASDAQ 1,435 1,503 4.8%
Dow 8,306 8,583 3.3%
Dax 2,838 2,986 5.2%

Despite the ongoing uncertainty over the SARS issue, most of the global benchmark indices also closed in the positive zone. Hang Seng (Hong Kong) and Dax (Germany) topped the list after Nasdaq. Down here in India, BSE also gained about 2%. Indian Economy saw the monetary and credit policy announcements for the first six months of financial year FY04. Both the bank rate and the CRR were cut by 25 basis points, which resulted in significant interest in the banking sector. There were also stocks like Kochi Refineries and Chennai Petro that moved up by more than 20% during the course of the week in light of impressive 4QFY04 numbers.

As far as Indian ADRs are concerned, it was a mixed week. Software companies, after losing on the back of the weak FY04 guidance, gained ground. They were among the top gainers this week. Both Infosys and Wipro were up by 1% while Satyam was down marginally. Both the banking ADRs also closed in the red. While ICICI Bank was down 3%, HDFC Bank lost marginally.

The macro-environment continue to remain weak with the three major economies viz. US, Europe and Japan struggling to push/maintain growth. Though the last quarter performance of corporate America was better, valuation of few tech stocks are still on the higher side. Given the backdrop of weakening consumer spending, investor sentiment may remain subdued. On the other hand, as far as Indian is concerned, continuation in FII inflow, softer interest rates and government's thrust on infrastructure development are the key triggers. At the same time, one should not ignore factors like higher inflation and expectations of a poor monsoon. Overall, though there are near-term factors that could have a negative impact on corporate profitability, an investment horizon of more than a year could benefit investors. After all, the Sensex is trading at 12x trailing twelve months earnings, which is among the lowest in the last decade or so.

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