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Rate cut beckons

Jun 23, 2001

The US markets were holding their gains in anticipation that the Fed will cut interest rates in its next policy meeting on 26th and 27th June. The markets this week were turbulent as hopes of an economic turnaround clashed with the latest round of earnings warning. The positive news on economy front was a fall in unemployment figures to 400,000 from 434,000 in the previous week. On the corporate front Oracle reported upbeat quarterly earnings.

However discouraging results from several tech companies trimmed the rally which started early during the week. Level 3 Communications, Transmeta and Tellabs reminded investors that the companies are having a tough time selling their products and services. Leading investment bankers too joined the list by announcing a slump in earnings. Goldman Sachs profits fell by 24% and Morgan Stanley reported a 36% drop in profits. On the fag end of the week, Merck & Co., the world’s No. 3 drug maker indicated that its current year earnings would be below prior projections on the back of weak sales of its flagship arthritis drug Vioxx.

Dr. Reddy’s stands out
(Price in $) 16-Jun-01 23-Jun-01 Change
Dr. Reddy's 15.6 17.1 9.4%
VSNL 14.0 13.7 -2.0%
Rediff 2.2 2.1 -3.2%
Satyam Infoway 3.9 3.8 -3.3%
ICICI Bank 5.7 5.5 -3.5%
Satyam 9.4 9.0 -3.7%
Infosys 65.6 62.9 -4.1%
Wipro 32.0 30.0 -6.2%
ICICI 10.9 9.7 -11.2%
Silverline 3.2 2.8 -12.7%

There was no respite for Indian ADRs. ICICI and Silverline plunged while Dr. Reddy’s soared over a week.

Internet stocks managed to gain some points in the last two days of the week. Sify moved up on its announcement of launching exportswebex.com, a B2B e-market place for Indian exporters and businesses to connect to global markets. The site was launched in strategic alliance with the US based Meet World Trade Inc. Rediff on the other hand was the most active and volatile stock.

Infosys lost 4% on grim future outlook from its largest client Nortel, which is re-negotiating billing rates with several Indian companies. The company is also considering a reduction of employee size in India.

During the week Wipro entered into several strategic alliances. It has announced a tie up with Artisan’s Partner Network. Wipro aims to offer a wide portfolio of customized services and strengthen the design services value chain by entering into ventures with physical library vendors like Artisan. Wipro would also serve as outsourcing partner of IT Frontier (the consulting company of Mitsubishi Corp., Japan). The scope of this partnership covers areas such as web and Internet related technologies. Wipro currently derives about 8% of its software exports from Japan. These alliances will not only help the company to strengthen its revenues but will also diversify its geographic base.

The world markets in general ended in a positive territory over the week. In the coming week, the Fed’s meeting will provide much needed direction to the markets, which are currently waiting for a trigger.

Steady markets
Indices 16-Jun-01 23-Jun-01 Change
Nikkei 12,790 13,045 2.0%
Hang Seng 13,103 13,174 0.5%
NASDAQ 2,028 2,035 0.3%
BSE 3,373 3,382 0.3%
Dow 10,624 10,605 -0.2%

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