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Earnings season rocks US markets - Views on News from Equitymaster
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  • Jul 20, 2002

    Earnings season rocks US markets

    Corporate accounting practices and quarterly earnings report stunned the US markets. While the Dow touched four year lows, the NASDAQ is trading near levels seen in April 1997. Meanwhile, the US Federal Reserve indicated that though the economy is showing signs of turnaround, recovery could be delayed.

    A host of tech companies announced their quarterly reports, but in general, disappointed markets. Slowdown in tech spending and sluggish demand has impacted performance of these companies. Apple, IBM, Siebel Systems and AMD issued cautious outlook for the current quarter. Sun Microsystems forecasted loss for the current quarter. Microsoft too could not remain immune and scaled back its profits outlook. Motorola, Intel and Citigroup, on the other hand, posted upbeat numbers and outlook.

    This time drug giants hurt the market sentiment. Johnson & Johnson confirmed that federal regulators are probing allegations of fraudulent record keeping at its Puerto Rico plant that makes an anemia drug, one of the company's best-selling medicines.

    Sify shines
    (Price in $) 13-Jul-02 20-Jul-02 Change
    Satyam Infoway 0.5 0.6 22.7%
    Dr. Reddy's 20.2 21.4 5.5%
    MTNL 5.9 6.1 3.4%
    VSNL 6.1 6.3 2.0%
    HDFC Bank 13.2 13.2 0.1%
    ICICI Bank 6.8 6.6 -2.4%
    Wipro 27.3 26.1 -4.5%
    Satyam 10.7 9.9 -7.4%
    Silverline 1.6 1.4 -9.6%
    Rediff 0.5 0.4 -13.0%
    Infosys 56.9 49.4 -13.3%

    Indian tech ADRs followed the trend in US markets while old economy stocks gained selective buying interest. PSU telecom stocks were in demand in otherwise nervous markets.

    Sify was the star performer of the week. The company announced its move to acquire all 200 corporate network services customers of Wipro, which were valued at Rs 280 m as on March 2002. Sify has however, not indicated the deal size. Corporate services is one of Sify’s most profitable business (existing client base of 500) and acquisition of Wipro’s customer base would strengthen its leadership.

    Dr. Reddy’s also accumulated strong gains. The company's plan of targeting the off-patent generic market and challenging existing patents seems to be bearing fruit. The company has recently filed an ANDA for Terbinafine HCL tablets with the US FDA. The drug is a generic version of Lamisil produced by Novartis. The product registered sales worth $460 million last year. Also, M&A activity in the global Pharma industry is likely to have improved sentiment for the sector, as investors expect others to catch the fever.

    Wipro lost ground on its lower than expected quarterly performance. The company reported a YoY 19% growth in revenues and 23% decline in bottomline. Excluding the charge of Rs 389 m, Wipro’s profits have fallen by 6%. Pricing pressure trimmed the company’s bottomline in the June quarter.

    Bleak weak for the world markets
    Indices 13-Jul-02 20-Jul-02 Change
    BSE 3,306 3,230 -2.3%
    FTSE 4,224 4,098 -3.0%
    Hang Sang 10,648 10,325 -3.0%
    Nikkei 10,601 10,202 -3.8%
    NASDAQ 1,374 1,319 -4.0%
    Dax 4,131 3,892 -5.8%
    Dow 8,685 8,019 -7.7%

    Accounting frauds from corporate giants and earnings report have spread nervousness in the world markets. While long-term trend looks uncertain, quarterly reports are likely to influence the near term movements of the markets.



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