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Stock Markets:Uncertain week ahead

Nov 23, 2002

The US markets gained for the 7th straight week at close of the current week. The tech heavy NASDAQ has been more buoyant than the Dow in the recent past. Investors are preparing themselves for the ‘thanksgiving’ holiday next week, which is considered auspicious by many. Better than expected economic news has been the major motivating factor for investors during the week. Lack of clarity on the Iraq issue may keep investors on the back foot for the time being and may pare the gains to a certain extent in the coming week. The major economic indicators that are likely to be released next week are the commerce Department second look at third-quarter gross domestic product. October personal income and spending report is another one of the much sort after reports coming out the next week. The holiday mood may overlook to a certain extent the bad news if any on the economic front. The coming week could see some profit booking on the tech counters, as the current levels do not seem sustainable.

(Price in $) 16-Nov-02 23-Nov-02 Change
Satyam Infoway 1.3 1.3 0.0%
ICICI Bank 5.2 6.0 15.4%
Dr. Reddy's 15.1 15.1 -0.3%
Wipro 33.6 33.9 0.9%
VSNL 3.9 4.0 2.6%
MTNL 3.9 4.3 10.3%
Infosys 72.7 84.2 15.8%
Rediff 0.4 0.7 75.0%
HDFC Bank 13.3 12.2 -8.3%
Satyam 12.2 12.4 1.6%
Silverline 0.6 0.7 16.7%

The week was dominated by Indian software ADRs. Performance of other Indian ADRs remained largely lacklustre. After rising consistently throughout the week software ADRs succumbed to profit booking on Friday. On the other hand after remaining on the sidelines throughout the week. ICICI Bank witnessed a spurt yesterday in its price (14%). The stock has been weak in the last couple of weeks due to off loading of its shares by a major strategic investor. The stock may have been buoyed by the asset reconstruction ordinance passed by the Indian parliament. ICICI Bank is expected to be the largest beneficiary due to this new law as it has a high level of NPAs in its books. This sudden spurt may also be the result of institutional buying in the counter.

Further profit booking in frontline software stocks cannot be ruled out in the coming week. However, buoyant sentiment on the US markets may overlook the high valuation that Indian software companies currently enjoy.

Indices 16-Nov-02 23-Nov-02 Change
FTSE 4,092 4,175 2.0%
Nikkei 8,504 8,773 3.2%
BSE 3,037 3,142 3.5%
Hang Seng 9,866 10,065 2.0%
NASDAQ 1,411 1,469 4.1%
Dow 8,579 8,805 2.6%
Dax 3,192 3,321 4.0%

The trend at the global indices has been healthy on the whole. Indian bourses in particular have been showing healthy signs of recovery. Software stocks have mainly led the rally. This rally may not sustain in the coming week as the stocks are already at very high valuations. A fair bit of profit booking cannot be ruled out in the coming week. European indices may see erosion in values as the largest economy in the region i.e. the German economy is facing tough times.

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