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US markets rebound - Views on News from Equitymaster
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  • Jun 9, 2001

    US markets rebound

    US markets rallied in the previous week, boosted by upbeat forecast from some of the tech majors. However, the spate of earnings warnings is not over, as some tech companies indicated that the downturn is still not over. The Fed also expressed its concerns about rising oil prices, which is likely to cast a shadow on any future projections.

    It was a testing time for the US markets in the previous week. Lucent Technologies, Xilinx, National Semiconductor and Intel projected positive outlook for the coming quarter. On the other hand Hewlett Packard, J. P. Morgan Chase, Juniper Networks and 3Com Corp scared the markets by cutting the quarterly revenue estimates.

    The US economy too is not showing any signs of improvement. The productivity in the first quarter fell 1.2%, its sharpest drop in the past eight years. Also, the new orders received by the US factories declined by 3%, hit by weak demand for cars and computers. Unemployment figures are moving higher. Weekly US jobless claims rose to 432,000 in the week ended June 2, their highest level since September 1992. During the first quarter, advertising spent was also down by 5.2% YoY to US$ 22.6 bn.

    Infy outperforms
    (Price in $) 2-Jun-01 9-Jun-01 Change
    Infosys 67.1 73.8 9.9%
    Dr. Reddy's 16.5 17.6 6.5%
    ICICI 11.8 11.7 -0.9%
    Silverline 3.7 3.7 -1.1%
    ICICI Bank 6.4 6.3 -1.4%
    VSNL 14.9 14.6 -2.0%
    Wipro 35.8 34.6 -3.3%
    Satyam 10.7 10.4 -3.5%
    Satyam Infoway 3.9 3.8 -3.8%
    Rediff 2.7 2.1 -22.6%

    Indian ADRs save for Infosys and Dr. Reddy’s ended lower over the week, opposite to the NASDAQ trend. Rediff was the largest loser, down 23%. The ADR closed at its lowest since its listing in June 2000.

    It was a week of joint ventures and alliances for tech companies. Infosys gained about 10% on its announcement of expanding its relationship with Toshiba Corporation, to build the information infrastructure for Toshiba's global operations across many lines of business. The company has also invested US$ 2.2 m in joint venture with Amex, TIBCO and WestBridge Capital Partners. The new company named Workadia, would provide companies with customizable business intranets. The market size for such solutions in 1998 was estimated to be US$ 4.4 bn and it is expected to grow to a size of US$ 14.8 bn by 2002 according to tdan.com (a newsletter on data administration). Thus Infosys is expected to generate reasonable earnings from this investment.

    Satyam has also entered into an alliance with MatrixOne to implement eMatrix (net market platform) business collaboration products and solutions. Sify’s (a 53% subsidiary of Satyam) annual results however discouraged the markets. The company reported a loss of US$ 54 m in FY01, up from US$ 8.1 m in the previous year. Total revenues of the company however grew by 166% to $ 38 m. Interestingly, for the first time the company has reduced its cash losses in the fourth quarter to $ 7.3 m from $ 8.5 m in the corresponding previous quarter. The company’s subscriber base too grew to 0.5 m as on March ’01.

    Silverline on the other hand is consolidating its Indian offshore development centers. The company is aligning client project work (all work for a specific client) to improve its responsiveness and accountability to each client.

    ICICI accumulated some gains towards the end of week. International rating agency Moody’s Investor Service is planning to upgrade rating of ICICI which would allow the institution to raise resources at cheaper rates both in Indian and overseas markets. ICICI is the only company from India among 38 companies worldwide that has been put up for review and upgrade beyond their country ceilings by Moody's.

    The tough time for the US markets is not over yet with more corporates expected to announce their earnings outlook in the coming week. The news on the economic front too is not encouraging. This is likely to influence the market movements.

    BSE underperforms
    Indices 2-Jun-01 9-Jun-01 Change
    Hang Seng 13,141 13,809 5.1%
    NASDAQ 2,149 2,215 3.1%
    Nikkei 13,262 13,430 1.3%
    Dow 10,990 10,977 -0.1%
    BSE 3,558 3,496 -1.7%
    For Live quotes on Indian ADR click here



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