Corporate misdemeanor trims gains - Views on News from Equitymaster

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Corporate misdemeanor trims gains

Aug 24, 2002

The US markets started the week on a strong note. However, news of corporate misconduct pruned the gains as the week closed. Economic data too was not of much help in perking investor interest. The index of US economic activity fell by 0.4% in July, its largest decline since September 2001. Regional Federal Reserve presidents’ also confirmed that economy would recover gradually and the central bank may not cut interest rates again.

Corporate earnings news was upbeat in the current weak. Home Depot, the world’s largest home improvement retailer, reported better than expected 28% rise in quarterly earnings. Software maker, Novell too posted quarterly profits compared with its year ago loss. This was on the back of a YoY 13% rise in revenues. The company estimates revenues to increase further by US$ 10 m in the current quarter compared to previous quarter.

Accounting inaccuracies however, weighed high on the markets. Financial giant, Citigroup was under watch, as regulators were scrutinizing Citi’s role in the collapse of WorldCom and Enron. Its brokerage unit, SSB, is also being probed. AOL Time Warner’s stock was also under pressure on fears that the company may undertake another large asset write off.

Internet stocks in limelight
(Price in $)17-Aug-0224-Aug-02Change
Satyam Infoway0.60.718.3%
Rediff0.30.414.8%
Wipro24.025.45.9%
Infosys53.756.14.5%
ICICI Bank6.06.23.0%
VSNL5.15.32.9%
Satyam9.49.62.4%
HDFC Bank14.114.21.1%
Dr. Reddy's18.017.7-1.7%
MTNL5.55.3-4.5%
Silverline1.10.9-13.0%

Internet stocks, Sify and Rediff were the leaders of the week. Frontline tech ADRs too bounced back sharply. Silverline crashed by over 10% on rising concerns about the company’s business fundamentals and management transparency. MTNL also ended in red, losing over 4%.

Wipro gained nearly 6% during the week, after having witnessed a steep downward correction in the last one-month. The company expects business to pick up in the coming months, as foreign firms step up outsourcing. Wipro has forecasted its second quarter (July-September) revenue from its Wipro Technologies division at US$ 135 million, up more than 4% from the preceding quarter.

VSNL too accumulated some points. The company aims to invest Rs 13 bn in broadband infrastructure for its proposed foray in national long distance telephony. As part of its build and buy model, the company would set up infrastructure in some areas and would acquire broadband infrastructure businesses of other companies. It has also appointed the investment banker for reviewing the decision of investing Rs 12 bn in Tata Teleservices.

Global markets ends positive
Indices17-Aug-0224-Aug-02Change
Dax 3,685 3,828 3.9%
BSE 3,066 3,119 1.7%
NASDAQ 1,361 1,381 1.4%
FTSE 4,330 4,390 1.4%
Dow 8,778 8,873 1.1%
Nikkei 9,788 9,867 0.8%
Hang Sang 10,265 10,246 -0.2%

The US markets are moving higher gradually on bargain hunting by investors. However, the weakness is likely to continue on re-ignited fears of doubtful corporate dealings. Outlook for software companies still remains uncertain on concerns about weaker than expected technology spending. This coupled with mixed news from economy is likely to trim any rally.

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