Jul 27, 2002|
Fear strikes on US markets
Concerns of corporate scandals and tepid earnings gripped the US markets, which fell sharply to the levels seen during October 1997. Investors bargain hunting for battered stocks, however, led to some recovery in key indices.
Early during the week, Citigroup pushed down the Dow. The company was one of the leading lenders to WorldCom, which filed for the largest ever bankruptcy. WorldCom owes US$ 155 m to the company. Aiding a sense of corporate house cleaning was news of the arrest of three members of the founding family of Adelphia Communications, which filed for bankruptcy last month. AOL Time Warner also indicated that SEC has opened an inquiry into accounting practices of its online division.
The NASDAQ recorded steep losses on bleak corporate earnings report. Taiwan Semiconductor, world’s largest contract chipmaker, which reported weaker than expected quarterly profits, dragged down tech stocks. The company forecasted that business would get worse in the current quarter. On the other hand, biotech companies and selective old economy majors reported better than expected results.
Grim economic data dampened market mood. Consumer durable goods order fell by 3.8% in June, casting doubt on the strength of the economic recovery. Consumer sentiment index in July 2002 fell to 88.1 from 92.4 in June. The index declined to its lowest level since November 2001. Consumer spending drives about two thirds of the US economy and fall in index could imply a persisting weakness in economy.
Indian ADRs sinks
|(Price in $)
Indian ADRs too could not remain immune from across the board sell-off in the US markets. PSU telecom stocks were the largest losers. HDFC Bank and Rediff however, managed to beat the sluggish trend and gained strong buying support.
Dr. Reddy’s crashed by 22% following the suspension of one of its key diabetes drug by Novo Nordisk. The company had very high hopes on this molecule, as the same was in the final stage of clinical testing. Markets were also expecting huge royalty payments if the molecule had gone for commercialization. The Indian tech giant, Infosys ended flat for the week losing most of its early week gains. Weakness in the stock was followed by resignation of its key marketing director, Mr. Phaneesh Murthy, over a harassment lawsuit filed by an employee.
Improvement in quarterly performance fueled buying interest in Rediff. The company reported a YoY 10% growth in revenues and its net loss declined by 41% to US$ 1.5 m. The company’s total registered users increased by over 110% over the same quarter last year to record 19.4 million as of June 30, 2002. The company’s cash burn for the quarter declined to US$ 1.3 m (from US$ 2.1 m). Total cash and cash equivalents approximated US$ 24 m at the end of the June quarter.
Dow not down
The world markets followed the trend in the US markets and recorded one of the largest losses in a week. Almost all the key indices touched their new one-year lows. Although, stocks have declined to their lowest levels, in the near term corporate earnings report is likely to influence the markets trend.
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