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Global markets: Black gold blurs outlook...

May 15, 2004

Concerns over rising oil prices continued to spook US investors throughout the week and as a result both the benchmark indices, the NASDAQ as well as the Dow witnessed considerable selling pressure and edged lower by almost similar rate of 1% for the week. Inadequate job creation was perhaps the only reason why the Fed was a little hesitant in hiking interest rates, which are ruling at their lowest in around 43 years. But with the economy adding a large number of jobs for two months in succession, it is being felt that the hike might just be around the corner. Rising interest rates are viewed with skepticism by investors as they slow down consumer demand, more so in an economy like the US where the consumer is highly dependant on debt. Thus corporates are hit on both the sides - slowing demand as well as high interest outgo on their balance sheets. Apart from this, the rising crude prices seem to be also affecting investor sentiment on account of possibility of rise in inflation. Add to this the growing threat of terrorism and you know why investors seem to be selling stocks.

Indices 7-May-04 14-May-04 Change
NASDAQ 1,918 1,904 -0.7%
Hang Seng 11,911 11,277 -5.3%
Nikkei 11,439 10,850 -5.1%
BSE 5,670 5,069 -10.6%
FTSE 4,498 4,442 -1.2%
Dow 10,117 10,013 -1.0%
Dax 3,896 3,803 -2.4%

While rising oil prices also continued to weigh on the other major indices across the world, there were some region specific events, which also added to the woes. Mining stocks led fall in European indices, as their future outlook appeared grim on account of fears of a possible slow down in Chinese economy. The fall was even more intense across Japanese markets, as two of its major exporting markets, the US and China, appeared well on the verge of slow down. Indian benchmark led the list of declines and lost nearly 11% over the week. While global events did affect the sentiments, an unexpected defeat of the incumbent party led to panic selling by investors, who feared that the reforms might take a hit.

(Price in US$) 7-May-04 14-May-04 Change
Dr.Reddy's 19.7 18.5 -6.1%
HDFC Bank 31.0 26.0 -16.1%
ICICI Bank 15.8 12.7 -19.6%
Infosys 84.0 74.7 -11.1%
MTNL 7.5 6.0 -20.0%
Rediff 7.9 7.2 -8.9%
Satyam 20.0 18.4 -8.0%
Satyam Infoway 6.5 6.2 -4.6%
VSNL 6.7 6.3 -6.0%
Wipro 44.5 38.8 -12.8%

Indian ADRs were all awash in red during the week with some of them even suffering huge double-digit declines. Banking and PSU stocks led the fall, as these were the sectors that were expected to be most susceptible to reforms. On the other hand, ADRs from sectors such as IT and pharma suffered a considerably lesser damage on account of them being by and large insulated from government policies. With a lot of profit hurting news doing the rounds, markets are expected to remain subdued over the next few weeks.

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