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Signs of a recovery… - Views on News from Equitymaster
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  • Nov 30, 2002

    Signs of a recovery…

    The Dow gained 1% during the week, while the Nasdaq gained 0.7%. The month too was a happy affair for the US markets. During November, the Dow gained 6% and the Nasdaq rose by a steep 11%. Good news on the economy front and growth in corporate earnings fueled the buying interest seen on the US bourses.

    After gaining on Monday, the Nasdaq head south on Tuesday on the back of the consumer confidence index for November coming in lower than expectations. The index for the month of November stood at 84 against expectations of 85. However, on Wednesday, the bourses ran up sharply. The Dow gained 255 points, while the Nasdaq gained 45 points. As a result, Dow touched its three-month high and the Nasdaq touched a five-month high.

    The buying interest was triggered by an improvement in economic indicators like employment, personal spending, manufacturing activity and durable goods orders. The markets are interpreting the improvement in economic indicators as the initial signs of a recovery and therefore, there is an optimism regarding growth in corporate profits going forward. The optimism was further strengthened after the Fed announced that the economic activity had grown in late October and early November. The Fed also indicated that while there was weakness in manufacturing and business spending, the retail sales (that accounts for two-thirds of the US GDP) were better. With the Thursday being a holiday, the profit taking, post Wednesday’s gains, was seen on Friday. Both the Dow and the Nasdaq fell marginally.

    (Price in US $) 23-Nov-02 30-Nov-02 Change
    Satyam Infoway 1.3 1.3 0.0%
    ICICI Bank 6.0 6.0 0.0%
    Dr. Reddy's 15.1 15.9 5.6%
    Wipro 33.9 35.8 5.6%
    VSNL 4.0 4.2 5.0%
    MTNL 4.3 4.1 -4.7%
    Infosys 84.2 83.3 -1.1%
    Rediff 0.7 0.7 0.0%
    HDFC Bank 12.2 NA NA
    Satyam 12.4 12.7 2.4%
    Silverline 0.7 0.9 28.6%

    Among Indian ADRs, those from the technology sector topped the list of gainers. Silverline saw a 29% increase in price. In the past, the stock has taken a severe beating due to the company posting very disappointing financials. Silverline was also faced with cash flow problems and had to sell off a part its business to stay afloat. It would be prudent for retail investors not invest in the stock. Wipro that has won number of big ticket contracts in the recent past continued to gain. Infosys, which is quoting at a steep discount to the stocks listed on the Indian exchanges, witnessed a bout of profit taking during the week. There were also rumors of Infosys planning a US$ 100 m ADR issue to increase its float in the US markets.

    Indices 23-Nov-02 30-Nov-02 Change
    FTSE 4,175 4,169 -0.1%
    Nikkei 8,773 9,216 5.0%
    BSE 3,142 3,235 3.0%
    Hang Seng 10,065 10,070 0.0%
    NASDAQ 1,469 1,479 0.7%
    Dow 8,805 8,896 1.0%
    Dax 3,321 3,320 0.0%

    Among the global indices, Nikkei topped the list with 5% gains. The Indian markets closed second with a gain of 3%. For the month of November, the FIIs have invested Rs 6 bn in the Indian markets. This comes after the FIIs being net sellers for two consecutive months. The amount invested was the second highest for the calendar year. The low valuations of the Indian markets along with an improvement in sentiment towards equities globally seem to have attracted investors.



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