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Global markets: Uncertainty on tech spend… - Views on News from Equitymaster
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  • Sep 13, 2003

    Global markets: Uncertainty on tech spend…

    US markets closed the week marginally in the red on account of profit booking in technology stocks. Both the Dow and the NASDAQ closed marginally lower week-on-week. However, this was amidst volatility witnessed during the week as investor’s exercised caution on account of the second anniversary of the terror attacks on the twin towers of the WTC.

    Despite the increased interest witnessed towards technology stocks at the start of the week (Monday) on the back of last week’s positive economic reports, indices witnessed profit booking on the following two days. On Tuesday, in absence of any economic news, investor focus shifted towards company specific news. Nokia announced that though demand is on a rise, revenue growth might get hit on account of weak dollar and increasing competition. This led to weakness towards the stocks in the sector. It should be noted that in the last two weeks, technology stocks had witnessed renewed buying interest as optimism and outlook towards the sector received a thumbs up from various factions of the investing community. On Wednesday, Texas Instruments reported that its third quarter results would be in line with its estimates. It must be noted that a few days back, Intel had also stated that it will meet its earnings estimates, but refrained from revising its earnings guidance upwards. Thus, in the absence of any upward revision in the estimates and also Wednesday being the eve of the attacks on WTC, investors opted to play safe and booked profits.

    Markets, however, gained ground on the following two days. Technology stocks led the gains on Thursday on account of positive news from Cisco Systems. The company said, in a regulatory filing, that its order backlog was up 14% from a year earlier. This raised optimism further regarding the recovery of demand in case of technology products. Even the poor weekly unemployment numbers failed to dampen investor sentiments. On Friday also, the markets gained marginally despite weak reports from retail sales and consumer sentiments.

    (Price in US $) 6-Sep-03 13-Sep-03 Change
    Dr. Reddy's 24.7 25.3 2.1%
    MTNL 5.4 5.4 1.5%
    Wipro 29.2 29.4 0.6%
    ICICI Bank 9.3 9.3 0.4%
    Silverline 1.1 1.1 0.0%
    Infosys 66.7 65.4 -2.0%
    HDFC Bank 22.0 21.5 -2.3%
    Satyam Infoway 6.2 6.0 -2.9%
    VSNL 5.5 5.2 -4.4%
    Rediff 5.8 5.5 -4.8%
    Satyam 13.3 12.5 -6.0%

    Indian ADRs were lackluster during the entire week. While the software ADRs gained ground in the last two weeks, this week they were in the red. Increased optimism towards growth in the sector had led to gains in ADRs over the past two weeks. However, we believe that there are no clear signs of recovery as yet. Dr. Reddy’s was the top gainer during the week.

    Indices 6-Sep-03 13-Sep-03 Change
    Nikkei 10,651 10,713 0.6%
    NASDAQ 1,858 1,855 -0.2%
    Dow 9,503 9,472 -0.3%
    FTSE 4,257 4,238 -0.5%
    BSE 4,369 4,306 -1.4%
    Hang Seng 11,171 10,884 -2.6%
    Dax 3,608 3,508 -2.8%

    Globally, indices lost ground during the week. However, Nikkei was an exception to this as it gained marginal ground. Top losers were Hang Seng (3%), Dax (3%) and the BSE Sensex (1%). Gains on the Nikkei were led primarily by banking stocks. Increased optimism that economic recovery in the second half of the current year would lead to reduction in NPA’s raised sentiments towards banking stocks, which was reflected in the gains on the Nikkei. During the week, the Dollar lost 3% against the Euro. Depreciation of dollar might impact sales of companies in the European region as their major revenues come from exports to US. Nokia had also expressed concern over the depreciation of the Dollar. European markets also closed lower for the week.

    During the last two weeks, strength in technology stocks was the major contributor to the gains on the indices. However, we reckon investors must exercise caution, instead of going overboard, in the absence of any definite signs of improvement in global IT spending.



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