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US markets in an uncertain zone - Views on News from Equitymaster
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  • Jun 4, 2001

    US markets in an uncertain zone

    It was a roller coaster week for the US markets. Earnings warnings from Sun Microsystems, Alcatel and EMC shook the confidence of the markets. On the other hand mixed outlook on the economy front and better than expected sales data from General Motors fueled the late rally in the markets.

    Economic data showed some positive signs. The jobless rate eased to 4.4% in May from 4.5% in April. The consumer confidence index jumped to 115.5 in May from 109.9 in April. Spending on goods and services also grew at a faster pace of 0.4%, from 0.2% in March. However, personal income grew at a slower rate of 0.3% in April, down from 0.5% in March. These reports suggest that economic weakness has not severely dented consumer buying behaviour as spending has increased faster than income growth.

    The negative news was from the National Association of Purchasing Management, which announced a fall in the manufacturing index to 42.1 in May from 43.2 in April. A reading below 50 signals contracting manufacturing activity, which comprises 20% of the U.S. economy. The mixed signals from the economy are probably leading to a cautious buying in the US markets.

    Dr. Reddy outperforms
    (Price in $) 26-May-01 2-Jun-01 Change
    Dr. Reddy's 13.9 16.5 19.3%
    Rediff 2.7 2.7 -0.7%
    VSNL 15.1 14.9 -1.0%
    ICICI Bank 6.4 6.4 -1.1%
    ICICI 12.2 11.8 -3.6%
    Satyam Infoway 4.1 3.9 -4.2%
    Wipro 37.5 35.8 -4.5%
    Infosys 72.3 67.1 -7.1%
    Silverline 4.0 3.7 -7.8%
    Satyam 12.3 10.7 -12.5%

    The pharma major Dr. Reddy’s was the only gainer among the Indian ADRs. The latest developments in the company generated a strong buying interest in the stock.

    Dr. Reddy’s reported a 69% growth in revenues and over 12% growth in profits for FY01. The merger with Cheminor fueled the financial performance of the company. Among the latest developments, the company has licensed its third anti-diabetic molecule to Novartis AG. As per the agreement Novartis will get worldwide exclusive rights and in return Dr. Reddy’s may fetch up to US$ 55 million as upfront and milestone payments as well as royalties depending on the success of molecule. The company has also benefited from the US court’s ruling against Eli Lilly. Dr. Reddy’s would be the only company to market a generic form of Prozac capsule (Eli Lilly’s patent expires in 2003) through Pharmaceutical Resources Inc. during the exclusivity period. The brand has annual projected sales of US$ 250 m.

    Among the tech ADRs, Satyam was the largest loser. The company plans to list its loss making Internet subsidiary Sify in the Indian markets by September ’01. It is also not sure of when its loss making subsidiaries will break even. This has put pressure on the stock price.

    Wipro, which was down by 4.5% over a week managed to gain some points in the last two days. This was on news of its appointment by Ericsson as a preferred supplier for consultancy services within the field of R&D consulting.

    US markets seems to be in an uncertain zone with weakening corporate earnings and bleak economic data. Some of the tech majors are expected to declare their results in the coming week, and their future outlook could partially decide the trend of the markets in short term.

    NASDAQ shakes global markets
    Indices 26-May-01 2-Jun-01 Change
    Dow 11,005 10,990 -0.1%
    BSE 3,660 3,558 -2.8%
    Nikkei 13,766 13,262 -3.7%
    Hang Seng 13,754 13,141 -4.5%
    NASDAQ 2,251 2,149 -4.5%



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