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US markets extends losses - Views on News from Equitymaster
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  • Jun 22, 2002

    US markets extends losses

    The US markets lost further strength and ended the week near levels seen during September 11 attacks. The markets failed to attract investor buying interest as political conflict and economic uncertainty rattled Wall Street.

    Early during the week, McDonald’s forecasted bright earnings on the back of favourable foreign exchange rates. The markets however, lost confidence after tech titans issued earnings warning. Oracle reported 23% drop in quarterly profits and indicated that next quarter sales are likely to be lower by 25% due to slack software demand. Apple, Advanced Micro Devices and Intel too announced gloomy outlook for earnings. This time the list of companies worrying investors also included giants from finance and pharma sectors.

    Investment banker, Morgan Stanley joined the list by reporting seventh straight quarterly fall in earnings. The company’s profits fell by 13%, hit by lower trading revenues and investment banking fees. Goldman Sachs Group too reported a 2% dip in quarterly profits. Misleading corporate accounting practices followed by the drug makers ImClone and Merck, triggered sell-off in pharma stocks. Investors opted to remain liquid amidst flow of negative news.

    MTNL holding ground
    (Price in $) 15-Jun-02 22-Jun-02 Change
    MTNL 5.7 6.0 5.4%
    VSNL 6.9 6.9 -0.7%
    Silverline 1.5 1.5 -2.6%
    Wipro 31.4 30.1 -4.4%
    Satyam Infoway 0.7 0.7 -5.2%
    HDFC Bank 15.0 13.9 -7.4%
    Rediff 0.5 0.5 -7.4%
    Infosys 57.5 53.2 -7.5%
    Dr. Reddy's 20.5 19.0 -7.7%
    Satyam 11.0 9.9 -9.6%
    ICICI Bank 7.7 6.6 -14.3%

    Indian ADRs save for MTNL, failed to attract demand. ICICI Bank was the major loser. Tech stocks too ended sharply lower. Indian software major, Infosys could not generate buying interest despite having announced a much-waited acquisition. The company acquired the treasury software unit of US based IQ Financial Systems for US$3.9 m to expand its banking portfolio and reach into new markets. Infosys has also taken over 28 employees from IQ’s division and it will have access to 62 clients spread across 19 countries. Infosys' banking products focus had so far been in retail and corporate banking segment. By adding treasury products to its portfolio, the division would gain access to clients in investment and wholesale banking. Markets were however, not excited about this acquisition, as the size of the deal was much smaller than the cash Infy is holding (US$ 150 m approximately).

    Rediff too crashed by over 7%. Towards the end of week, the company announced its decision to switch to trading on the Nasdaq Small Cap Market from the Nasdaq National Market, starting June 24th, 2002. To trade on the Nasdaq, the company’s stock price needs to trade for at least 10 consecutive days, out of 90 days above US$ 1. Rediff failed to meet this criterion and decided to switch to small cap market.

    Dr. Reddy’s lost significant gains. The company announced it has filed Para IV certifications on two patents listed for Pfizer's Norvasc (Amlodipine Besylate) product. Pfizer has already filed a suit against Dr. Reddy’s for one of these patents. The product is used for the treatment of hypertension and angina and it had sales of US$ 2.5 bn in US in 2001.

    Global markets chills
    Indices 15-Jun-02 22-Jun-02 Change
    FTSE 4,631 4,605 -0.6%
    Dax 4,304 4,232 -1.7%
    BSE 3,312 3,243 -2.1%
    Dow 9,474 9,254 -2.3%
    Hang Sang 10,956 10,592 -3.3%
    NASDAQ 1,505 1,441 -4.2%
    Nikkei 10,921 10,354 -5.2%

    The US markets are showing no signs of revival over the last one month. While, corporate financials continue to worry investors, economic data is also not impressive enough to bring back buying interest. The Federal Reserve is set to take the spotlight this week with its latest decision on interest rates. It is widely expected that the central bank will keep interest rates untouched. However, more than the interest rates, it is the Fed’s outlook for the economy, which would impact market sentiment in the coming week.



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