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Global markets: Europe stagnating - Views on News from Equitymaster
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  • May 10, 2003

    Global markets: Europe stagnating

    It was a very volatile week for the US markets. Out of the five trading sessions, the markets remained buoyant for about three days while it was in the red in the other two sessions. However it managed to close higher towards the end. The end of the war in Iraq may be seen as a positive, which seems to have cheered investors. This may be reflected in the gains observed in the last one month on the NASDAQ. While Dow gained marginally over the week, NASDAQ managed to gain about 1% point.

    Monday was mixed for the US markets, however investors were more concerned about developments on Tuesday. The Federal Reserve chairman, Allan Greenspan announced the Federal Reserve's policy regarding Federal rates on tuesday. The Federal Open Market Committee kept interest rates unchanged at 1.25%. However the cautionary statement given by the chairman regarding the weak US economic growth going forward dampened investor sentiments. On Tuesday however, US markets managed to close higher mainly because of the higher first quarter results announced by Echostar, the satellite TV broadcaster. This led to gains in other radio and television companies.

    In the next two days, markets remained bearish owing to concerns regarding the weak economy and depreciating dollar. This bearishness was also led by Cisco's announcement of its quarterly results. Though the company reported 35% growth in bottomline despite the fall of 4% in its topline, weak outlook regarding IT spending in the next quarter infused nervousness in the markets.

    On Friday however markets managed to gain strength. Gains observed on Friday were led by technology stocks. Intel's president's expectations regarding demand growth from the Chinese markets for semiconductor chips and recovery of the semiconductor markets going forward further fueled the sentiments.

    Indices 26-Apr-03 3-May-03 Change
    FTSE 3,953 3,969 0.4%
    Nikkei 7,907 8,152 3.1%
    BSE 2,967 2,951 -0.5%
    Hang Seng 8,808 9,084 3.1%
    NASDAQ 1,503 1,520 1.1%
    Dow 8,583 8,605 0.3%
    Dax 2,986 2,957 -1.0%

    Asian markets topped the gains over the week with both Hang Seng and the Nikkei gaining about 3%. However the European markets were among the losers with FTSE gaining marginally. Dax (Germany) lost about 1% in the week. It should be noted that Germany might be facing recession and consequently deflation. Since Germany is the largest economy in Europe, the rest of Europe may also face recession. The economic concerns in this region seem to dampen investor confidence. The Indian BSE Sensex was down marginally.

    (Price in US $) 26-Apr-03 3-May-03 Change
    Satyam Infoway 4.8 7.7 59.1%
    ICICI Bank 5.7 6.0 5.3%
    Dr. Reddy's 18.8 18.0 -4.3%
    Wipro 21.0 21.2 1.0%
    VSNL 3.3 3.4 4.2%
    MTNL 3.9 4.2 8.0%
    Infosys 42.1 42.0 -0.3%
    Rediff 4.9 6.5 32.5%
    HDFC Bank 16.5 16.3 -1.2%
    Satyam 8.0 8.3 4.4%
    Silverline 1.2 1.3 9.2%

    Indian ADRs managed to gain strength in the week except for Dr. Reddy's laboratories (4%), Infosys (marginally down) and HDFC Bank (1%). Major gainers among the Indian ADRs were Sify (59%) and Rediff (33%). With Sify achieving breakeven for the first time in the recent quarter, the stock is gaining ground since the past few trading sessions. Rediff is also trading near its 52-week highs. With the new interconnect regime in place in India, it is expected that MTNL will be the major beneficiary. The stock is gaining ground since then. It has gained 8% since last week while VSNL also gained about 4%.

    However despite the gains observed in the global markets it should be noted that concerns regarding global economic growth is still real. With Europe and America experiencing pressure on economic growth investor sentiment is likely to remain subdued. It should be noted that both Germany and America are nearing a stage where they may enter into a stage of deflation. However, as far as the Indian stock markets are concerned, FIIs seem to be becoming more optimistic. To put things into perspective, they have added about Rs. 7 bn in the last three weeks. Also Corporate India has posted reasonably good results till now. The passage of Electricity Bill - 2001, illustrates that efforts of the government in carrying out various reforms can be realized in the long term. Thus any long-term investment strategy in the Indian markets seems to be optimistic.



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