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Semi conducted optimism - Views on News from Equitymaster
 
 
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  • May 18, 2002

    Semi conducted optimism

    The Nasdaq gained about 9% during the week, making it the best week in a year. The Dow also ended the week on a positive note. However, the gains were lower compared to the gains on the Nasdaq.

    Nasdaq rose for five consecutive trading sessions driven by optimism that was a result of encouraging reports from the semiconductor industry, the latest coming from Applied Materials. The chip equipment manufacturer that declared its results on Tuesday after the closing bell, beat market expectations regarding topline and bottomline growth.

    Traditionally, the recovery in the technology sector in the US has been led by an improvement in the semiconductor industry and therefore, the string of positive numbers that have come from the chip industry could be taken as initial signs of a recovery. In April, Intel said that it was optimistic regarding sales improving in the near future. Novellus, another chip equipment manufacturer had also reported of capital spending in the semi conductor industry picking up. This is the fifth consecutive month of rising semiconductor equipment orders.

    The numbers reported by Dell further strengthened the optimism on the Nasdaq. On Thursday the company reported a better than expected earnings. Also, Dell indicated a possibility of topping earnings forecast going forward.

    The Dow, on the other hand, had a mixed week. On Monday, the US markets soared, boosted by strong US retail sales and solid earnings report from the industry leader, Wal-Mart. Retail sales increased by 1.2% in April, which is the largest monthly gain since October. Wal-Mart recorded a 20% rise in quarterly profits on the back of its expanding food sales and indicated that it is on track for the full year earnings. However, on Wednesday, lower than expected topline growth from HP, a constituent of the Dow, caused the stock to weaken. Consequently, the Dow closed in the red.

    Next day, the Dow witnessed cautious buying after news that Pfizer Inc. is facing a probe over possibly overcharging the government for its largest selling drug, Lipitor. Among other news, the number of new jobless claims rose in the latest week, staying above 400,000 for two months. US housing stats fell 5.4% in April, a larger than expected drop. Manufacturing activity in the US mid-Atlantic region posted a fifth straight month of growth in May but the pace eased and suggested factory output is moderating.

    Indian markets buck global uptrend
    Indices 11-May-02 18-May-02 Change
    Nikkei 11,531 11,847 2.7%
    BSE 3,431 3,334 -2.8%
    FTSE 5,171 5,218 0.9%
    Dow 9,940 10,353 4.2%
    Hang Sang 11,646 11,975 2.8%
    Dax 4,872 5,036 3.4%
    NASDAQ 1,601 1,741 8.8%

    Even as markets the world over gained during the week, Sensex was the odd man out. The Sensex declined by 3% during the week. The terrorist attacks on family members of the Indian armed forces have heightened tensions between India and Pakistan once again. Fears of a retaliatory action by India, leading to an all out war kept investors away from the bourses. Low volumes plagued trading.

    Among the Indian ADRs, only technology stocks topped the list of gainers. Satyam, Silverline, MTNL and Dr. Reddy's witnessed selling. Wipro that gained by 5% during the week is looking at buying out ‘a large’ information technology consultancy. The Chairman, Mr. Azim Premji, indicated this in an interview with the Asian Wall Street Journal. The company plans to make the acquisition in its largest market the US. The move will not only help the Indian software major move up the value chain but also give it access to an existing clientele. However, it was Infy that gained the most. The stock gained by 10% during the week.

    Indian ADR’s: Charge of the tech brigade
    (Price in $) 11-May-02 18-May-02 Change
    Dr. Reddy's 21.7 21.3 -1.8%
    MTNL 6.4 6.0 -6.4%
    Infosys 61.2 67.0 9.5%
    HDFC Bank 14.8 15.3 3.4%
    Wipro 33.4 35.0 4.8%
    Satyam 11.2 10.8 -3.6%
    Rediff 0.7 0.8 8.7%
    VSNL 7.5 7.7 3.1%
    ICICI Bank 6.7 7.1 6.0%
    Satyam Infoway 1.0 1.0 3.1%
    Silverline 1.9 1.7 -13.2%

    Satyam, however, bucked the trend and closed in the red. The company’s management had expressed intensions of selling its loss making subsidiary, Satyam Infoway, by March 2002. So far no news has come out on this front and the markets seem to be getting impatient. Satyam has been witnessing weakness at the domestic bourses also.

    Thus, expectations of a recovery in the technology sector seems to be gaining ground and therefore, technology stocks could continue to hog limelight at the Dow and the Nasdaq. As far as India is concerned, the situation with Pakistan is likely to have a greater influence on the movement of the Indices.

     

     

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