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US Markets: Cisco raises hopes - Views on News from Equitymaster
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  • May 11, 2002

    US Markets: Cisco raises hopes

    It was a week of heightened sentiments. Markets had a monster rally during the mid week after Cisco issued an encouraging outlook on tech spending. However, optimism over Cisco results soon fizzled out after IBM sent contrary signals with a huge layoff program. Worsening financial position of Telco’s added to the pessimism, particularly after credit rating agencies slashed WorldCom Inc’s credit-worthiness to ‘Junk’ status. Oil stocks however, managed to buck the trend amidst fears of further flare up in oil prices inspite of approaching summer.

    If somebody has benefited strongly post the Sept’ 11 mayhem it seems to be - Berkshire Hathaway Inc, investment company promoted by legendary investor Warren Buffett. A strong surge in demand for insurance and tightening of supply post Sept’11 resulted in insurance and re-insurance rates soaring, after a decade of decline. Berkshire declared a 51% rise in net profits for the quarter ended Mar’02. Earnings per share were US$ 598 (Rs 29,900) for the quarter. Berkshire's Class A stock, which has not been split in Buffett's 37 years in charge of the firm, trades at $75,700 (Rs 3.8 m a share).

    Investors pined hopes of economic recovery after Cisco, the world’s No. 1 maker of gear that directs Internet traffic, more than tripled last year’s soft earnings and consoled that IT spending is improving. Cisco’s stock surged 24% after the company declared its results creating ripples in the broader market. However, profit booking followed as participants soon realized all is not rosy. The jump in profitability was on the back of lower base last year. Further, a cautious outlook from IBM also diluted optimism. Though Cisco’s results is giving hopes for a bounce back in tech spending, participants are likely to wait for similar encouraging guidance’s from other majors to fuel a rally.

    Meanwhile, crude oil prices surged ahead to 8 month high amidst tensions on the Gaza strip. Crude prices have rose nearly 40% since January’02 on output cuts by international producers, economic recovery and fears Washington would expand its war on terrorism to oil exporter Iraq, and the Israeli-Palestinian conflict.

    Overall economic sentiment remains subdued ignoring strong GDP growth numbers on the back of steep unemployment rate and fears over impact of rising crude prices on the economy. U.S. Federal Reserve Chairman Alan Greenspan admitted that U.S. economy was potentially vulnerable to Middle East price shocks, but added it would take a fairly significant oil price spike to hurt the economy.

    Indian ADR’s: ICICI Bank, the star gainer
    (Price in $) 4-May-02 11-May-02 Change
    Dr. Reddy's 20.6 21.7 5.3%
    MTNL 6.3 6.4 1.6%
    Infosys 63.1 61.2 -3.0%
    HDFC Bank 15.0 14.8 -1.3%
    Wipro 32.0 33.4 4.4%
    Satyam 11.8 11.2 -5.1%
    Rediff 0.7 0.7 0.0%
    VSNL 7.3 7.5 2.7%
    ICICI Bank 5.1 6.7 31.4%
    Satyam Infoway 1.1 1.0 -9.1%
    Silverline 1.9 1.9 0.0%

    Indian ADR’s were a mixed bag. Major tech counters except Wipro, witnessed profit booking. Wipro on the other hand, was up by 4%. The company announced the availability of suite of Multi Protocols Label Switching (MPLS) and Routing Protocols. These ready-to-use protocol stacks will help the network equipment vendors to reduce their development time and accelerate time to market. These standard based portable components can be easily integrated in to the vendor equipment

    Satyam Infoway was the biggest loser for second consequent week. Though the subscriber base for the company’s ISP business is on the rise, the company is facing stiff price competition. Satyam Computers also dipped 5% on account of profit booking.

    Major markets end flat
    Indices 4-May-02 11-May-02 Change
    Nikkei 11,551 11,531 -0.2%
    BSE 3,381 3,431 1.5%
    FTSE 5,203 5,171 -0.6%
    Dow 10,007 9,940 -0.7%
    Hang Sang 11,797 11,646 -1.3%
    Dax 4,883 4,872 -0.2%
    NASDAQ 1,613 1,601 -0.8%

    While, the economic data apparently seem to be giving a ray of hope for the US economy, market participants seem to be adopting a cautious stand before clear signals emerge. However, the underlying message that one gets from revenue guidance is that corporates are expecting a recovery sooner than later.



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