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Global markets: Volatile!

Sep 27, 2003

US markets were mired in volatility and closed the week in the negative. While the Dow was down 3%, the NASDAQ lost about 6%. The week started on a negative note on account of concerns regarding the depreciation of the dollar against the Yen. Also, profit booking in technology stocks added to further losses.On Tuesday, the indices gained ground on account of positive news from corporate America. Cisco Systems announced that its board has approved up to US$ 7 bn of stock buyback apart from the previous approval of a buyback of US$ 13 bn. Buyback announcements usually indicate promotersí confidence in the business, thus leading to increased optimism. Also positive news from Sun Microsystems further aided confidence towards technology stocks.

However, the markets witnessed a sharp decline on Wednesday on account of a surprise cut in production announced by OPEC in an attempt to bring crude prices to their favourable range. This was bad news as the US is one of the largest importers of crude oil and this increase is likely to hamper the expected US economic recovery.

On Thursday, the markets continued to witness selling pressure and lost further ground. Positive news regarding unemployment numbers and robust housing segment failed to enthuse investors. Durable goods order reported a surprise drop in the month of August. In corporate news, Eastman Kodak announced a cut in the dividend by about 70% and also said that it would shift its focus towards digital photography and ink-jet printers. Markets continue to witness selling pressure on Friday also on account of news regarding decline in consumer sentiment. However on the positive side, the GDP figures for the second quarter were revised upwards from the earlier 3.1% to 3.3%.

(Price in US $)20-Sep-0327-Sep-03Change
ICICI Bank9.510.610.9%
MTNL4.95.26.4%
VSNL5.15.22.2%
Wipro28.929.41.5%
HDFC Bank21.021.20.8%
Silverline1.11.10.0%
Rediff6.06.0-1.3%
Infosys69.267.8-2.0%
Satyam13.112.7-3.4%
Dr. Reddy's24.222.8-5.6%
Satyam Infoway7.16.1-14.3%

Indian ADRs were a mixed bag during the week. Top gainers included ICICI Bank (11%), MTNL (6%) and VSNL (2%). ICICI Bank has more or less done the restructuring exercise after becoming a universal bank and has increased its incremental market share in the retail segment. Its focus towards the retail side has increased and has also improved its margins. Going forward, it is likely to be one of the biggest beneficiaries of the Securitisation Act. Software ADRs witnessed profit booking during the week. While Infosys lost 2%, Satyam was down 3%.

Indices20-Sep-0327-Sep-03Change
BSE4,2174,3833.9%
Hang Seng10,96811,2902.9%
FTSE4,2574,157-2.3%
Dow9,6459,313-3.4%
Nikkei10,93810,318-5.7%
NASDAQ1,9061,792-6.0%
Dax3,5793,325-7.1%

Barring Sensex and Hang Seng, globally the indices were in the red. The NASDAQ (the US), the Nikkei (Japan) and the Dax (Germany) were the top losers with declines of 6%, 6% and 7%, respectively. OPECís decision to cut production led to an increase in crude oil prices. This raised the concerns for companies like BASF and Bayer who are likely to be the most affected by this increase in crude oil prices as this is their major raw material. Also, declining dollar led to concerns for companies like Phillips, whose exports come mainly from the US markets. This led to the decline in indices in the Europe.

While the US markets witnessed a surge in the index levels in the past few months, this week however witnessed a reversal in the trend. The indices have surged largely on the back of increased optimism towards recovery in the US economy. However still, the economic reports that have come in the last few months have shown mixed sentiments.

Read: Dr. Marc Faberís view on global markets

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