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US markets lacking confidence

Jun 29, 2002

The US markets witnessed volatility this week, as corporate America shook investors confidence. During the week, both the key indices, NASDAQ and Dow touched the levels unseen after the September 11 attacks. Upbeat data on the US GDP growth failed to cheer markets. The week started with a disappointing quarterly performance from 3Com and Palm. DuPont on the other hand, raised its second quarter earnings estimate, citing higher sales across its different business units. Motorola too reaffirmed its operating earnings forecast for the second quarter and full year. However, the company indicated to cut 7,000 more jobs and to take charges of about US$ 3.5 bn.

The world markets were rocked mid-week after WorldCom, the second largest long distance service provider in the US, admitted that it overstated results by US$ 3.8 bn. Xerox joined the list, by declaring that it restated five years of results to reclassify more than US$ 6 bn in revenues. Accounting scandals poured on the US markets, which were already lacking confidence.

Meanwhile, the US economy showed some signs of strength. The US GDP grew at a revised rate of 6.1% in the first quarter of 2002, boosted by an increase in business spending for equipment and computer software. Consumer spending, which fuels two third of the US GDP, also grew at healthy rate of 3.3%. Jobless claims fell for the fourth straight week by 10,000 to 388,000. On the other hand, the consumer confidence index posted its largest monthly drop in June, after Sept. 11 attacks due to weak jobs market, falling stock markets and inaccuracies in corporate accounting. The index fell to 106.4 in June from 110.3 in May.

Internet ADRs loses sheen
(Price in $) 22-Jun-02 29-Jun-02 Change
ICICI Bank 6.6 7.0 6.1%
Satyam 9.9 10.5 5.7%
Dr. Reddy's 19.0 19.4 2.3%
Silverline 1.5 1.5 0.0%
Wipro 30.1 30.0 -0.3%
MTNL 6.0 5.9 -2.0%
Infosys 53.2 51.2 -3.7%
HDFC Bank 13.9 12.9 -7.1%
Rediff 0.5 0.5 -8.0%
VSNL 6.9 6.1 -10.9%
Satyam Infoway 0.7 0.5 -26.6%

Indian ADRs gained selective buying interest. ICICI Bank flared up by over 6% during the week and Internet ADRs recorded sharp losses. VSNL crashed by over 10% on concerns about amount owed by WorldCom, which is expected to be around Rs 5 bn. Tech ADRs managed to recover some of their losses during the last two days of the week.

Infosys announced an alliance with US based, Concours group, a consulting firm. Both the companies together will pool their expertise and resources to help Global 1000 companies define, design and implement large scale change programs intended to yield significant business impact through technology. Infy’s ADR was however, lost 4% over a week.

Wipro was down marginally. The company announced to open a design center for embed solutions at Kiel in Germany. This center is to service customers in Germany and in northern Europe. Wipro is looking towards acquiring firms in the US, Europe and India in the range of US$ 5 m to US$ 200 m. Wipro has cash reserves of US$ 328 m, which would support its acquisition plans.

Global markets firms up
Indices 22-Jun-02 29-Jun-02 Change
Dax 4,232 4,383 3.5%
Nikkei 10,354 10,622 2.6%
NASDAQ 1,441 1,463 1.5%
FTSE 4,605 4,656 1.1%
Hang Sang 10,592 10,599 0.1%
BSE 3,243 3,245 0.1%
Dow 9,254 9,243 -0.1%

June was a rough month for the US markets, affecting investor confidence due to concerns of corporate insider trading and accounting blunders, which shocked the markets globally. Warnings of potential terror attacks on July 4, Independence Day, could keep investors away from the markets in the coming week.

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