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Wall Street revives but…

Aug 10, 2002

It was the largest percentage gain recorded by the US markets for the week, after May 2002. Both the Dow and the NASDAQ gained nearly 5%. Improvement in investor psychology on hopes of interest rate cuts by the Federal Reserve in its next policy meeting pushed up the markets. News of a US$ 30 bn financial bailout by IMF, for debt-ridden Brazil, intensified expectations for rate cuts. The lifeline from IMF helped ease fears that Brazil might default on its US$ 250 bn public debt. It was the same concern, which plagued Argentina earlier this year. The announcement propelled banking giants, Citigroup and J.P. Morgan Chase that have invested heavily in Brazilian companies.

Cisco also infused buying interest on its better than expected quarterly performance. The company however, indicated cautious spending by its customers. Sales warnings from data storage equipment maker, Emulex however, spoiled market mood on the last trading day of the week. Qwest too reported US$ 1.1 bn quarterly loss and WorldCom revealed an additional US$ 3.3 bn accounting error in earnings. The latest finding doubled the accounting errors of the company to more than US$ 7 bn.

The street was also wary about the outlook for profits on a slew of sluggish economic data. Growth in the productivity of US workers slipped sharply in the second quarter to 1.1% from a strong 8.6% growth recorded in the previous quarter. Non-manufacturing index fell to 53.1 in July from 57.2 in June, reflecting a slowdown in the US service sector. Consumer spending, which powers the economy growth, also grew at a slower pace in June by US$ 8.4 bn, down from US$ 9.5 bn in May.

Internet stocks shine
(Price in $) 3-Aug-02 10-Aug-02 Change
Satyam Infoway 0.5 0.6 18.8%
Rediff 0.4 0.4 17.1%
Satyam 8.1 8.8 9.4%
Wipro 22.9 24.9 8.6%
MTNL 5.2 5.3 1.0%
HDFC Bank 14.1 14.2 0.8%
VSNL 5.1 5.0 -1.4%
Infosys 53.4 52.2 -2.2%
ICICI Bank 5.8 5.6 -4.5%
Dr. Reddy's 19.1 18.0 -5.8%
Silverline 1.2 0.9 -29.2%

Indian ADRs were up selectively. Internet stocks, Rediff and Sify were the strong gainers of the week. While Silverline crashed by 29% on reports that the company is lacking working capital to pay salaries of its employees in US and in India. MTNL was the most volatile stock of the week. The stock gained nearly 20% on Thursday, only to take a u-turn the next day (down 19%).

Sify was the largest gainer, on news that Reliance Infocom is interested in acquiring a controlling stake in the company. Sify’s promoter Satyam is also in talks with Infosys, Wipro and Tata group for selling the stake in the company. Meanwhile, Satyam too flared up by 9% for the week after reports that private equity firm, Warburg Pincus, has bought over 5% stake in the company through the open market, hiking its total stake to 8%. Warburg invested about US$ 70 m to acquire 16.8 m shares of the company (Rs 204 per share). Satyam has also signed an agreement with Saint Gobain, US to provide IT services.

Infosys lost nearly 2% of gains on news that its chief marketing officer has quit the company to join rival Wipro. Last month Infy’s global head of sales and marketing had resigned to defend himself in a sexual harassment case in the US. Wipro’s ADR, on the other hand, gained over 8% during the week.

Europe leads the pack
Indices 3-Aug-02 10-Aug-02 Change
Dax 3,532 3,761 6.5%
FTSE 4,076 4,322 6.1%
Dow 8,313 8,745 5.2%
NASDAQ 1,248 1,306 4.7%
Nikkei 9,710 10,000 3.0%
Hang Sang 9,992 10,014 0.2%
BSE 2,985 2,976 -0.3%

The world markets witnessed a strong rebound after having remained subdued in the last two months. The revival in the US economy is however, uncertain. Grim outlook for corporate earnings, slump in equity markets and a host of accounting scandals could dent the US economic growth. The International Monetary Fund (IMF) has already expressed worries about expected recovery in the US economy. Consequently, the trend in markets could remain weak.

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