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Sliding economy worries US markets

May 26, 2001

Tech stocks on the NASDAQ were on fire pushing the index up by 2.4% over a week. The markets however displayed zigzag movements on the continued worries of economic slowdown. On the other hand Dow ended lower by 2.6% due to selling pressure in old economy stocks. During the week the central bank chairman expressed his concerns about flagging economic growth and warned that the scenario could weaken further. However, he expected the revival in the US economy by the end of the year fueled by five interest rate cuts made by him earlier.

The news on economic front was disappointing. The US home sales declined by 9.5% in April to 894,000 units from 988,000 in March, the largest percentage drop since April ’97. GDP growth too slowed down to 1.3% in the first quarter of 2001 down from the 2% growth rate reported a few weeks ago. The orders for capital goods items - machinery, electronics and aircraft fell 5% and computer chips recorded a 41% slump.

ICICI gains
(Price in $)19-May-0126-May-01Change
ICICI11.612.25.2%
Dr. Reddy's13.213.94.9%
Satyam11.912.33.4%
Wipro36.337.53.3%
VSNL15.115.10.0%
Silverline4.14.0-1.5%
Infosys74.572.3-3.0%
Satyam Infoway4.24.1-3.1%
ICICI Bank6.86.4-4.9%
Rediff2.92.7-7.5%

The trend in Indian tech ADRs was mixed. ICICI and Dr. Reddy’s were the major gainers while Rediff and ICICI Bank were the key losers.

ICICI and Dr. Reddy’s gained on the news of increase in FDI limit in the banking and pharma sectors. Satyam and Wipro also managed to attract some buying interest but Infosys lost ground on its weak future outlook. Infy is still trading at a premium of 62% compared to its domestic price.

Internet stocks Sify and Rediff were out of favour. Concerns over future losses, kept the investors away from these stocks.

It was a mixed week for the US markets. Investors seem to be re-balancing their portfolios in favour of tech stocks, on expectations of larger gains from these stocks in the longer term. However, the outlook for the corporate earnings in the medium term is still uncertain as the interest rate cuts by the Fed will take at least a year to get reflected in the profits.

NASDAQ on a roll
Indices19-May-0126-May-01Change
NASDAQ2,1992,2512.4%
Hang Seng13,45913,7542.2%
BSE3,6553,6600.1%
Nikkei13,87813,766-0.8%
Dow11,30211,005-2.6%

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