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Looking for a trigger

Dec 7, 2002

The US markets have been choppy in the last week. They have ended below their levels last week. The bullish sentiment seems to be waning. At the beginning of the week weakness in the Dow was mainly due to news that manufacturing activity in the month of November was weaker than expected. Good news on the retail sales side however managed to keep the losses limited on the Dow. But during the course of the week the US markets lost further ground due lack of an adequate trigger as well as mixed signals from the economic front. The services sector figures indicated that the sector was doing better than expected. The unemployment rate has increased in the month of November. At the end of the week on Friday stocks however rose after news came in that two of the US treasury secretaries have resigned. Both the DOW and the NASAQ gained marginally at closing yesterday. But for the whole week however the US markets have lost ground ending the rally since October. The expectation on the markets is that the new treasury secretary is likely to be investor friendly. Investors expect cuts in tax rates as well as incentives for investing in the stock markets. All in all the markets have been subdued during the week. The current period is the holiday season in the US and on account of this investor sentiment may be buoyant in general. Further strength cannot be ruled out in the coming weeks.

(Price in US $) 30-Nov-02 7-Dec-02 Change
Satyam Infoway 1.3 1.3 0.0%
ICICI Bank 6.0 5.8 -3.5%
Dr. Reddy's 15.9 15.9 0.2%
Wipro 35.8 33.5 -6.4%
VSNL 4.2 4.2 -0.7%
MTNL 4.1 4.4 7.3%
Infosys 83.3 68.5 -17.7%
Rediff 0.7 0.6 -21.4%
Satyam 12.7 13.3 4.9%
Silverline 0.9 1.2 28.9%

Indian ADRs had a volatile performance on the indices during the week. Software ADRs were buoyant during the week with the exception of Infosys. Silverline recovered from lower levels to breach the US$ 1 mark. The stock has been losing ground ever since it announced poor FY02 results. There was considerable movement on the Wipro counter. News reports indicate that the company may go in for a secondary listing of its ADRs mainly to fund any major acquisitions. The ADR component is just over 1% of Wipro’s total equity. The company wants to issue new ADRs to increase the participation of investors. The midweek fall in the ADR price may be a correction on account of this new development. Another counter, which attracted attention, was that of ICICI Bank. ICICI Bank has been gaining consistently on the bourses ever since the asset reconstruction ordinance has been ratified. Aggressive initiatives from the bank to recover dues have kept the counter buoyant. But the counter has fallen from its last week’s levels during this week indicating a profit-booking trend.

HDFC bank on the other hand started losing at the end of the week as it fell from higher levels. This counter also was buoyant during the beginning of the week. Losing marginally on Thursday. Indian ADRs however showed a mixed picture on Friday. The highlight on Friday was the performance of the Infosys ADR. The ADR has fallen nearly 15% after news came in that the company is considering a dilution of equity by way of issuing American depository shares. The new shares are likely to be issued in exchange of existing shares thus increasing the overseas equity participation in the share. There is speculation that this move may have been initiated in order to fund a major acquisition in the near term.

The major gainers on Friday included Silverline Technologies, MTNL and Wipro. MTNL gained considerably yesterday due to positive news on disinvestments. The sentiment towards Indian ADRs seems to be strengthening.

Indices 30-Nov-02 7-Dec-02 Change
FTSE 4,169 4,014 -3.7%
Nikkei 9,216 8,863 -3.8%
BSE 3,235 3,307 2.2%
Hang Seng 10,070 9,974 -1.0%
NASDAQ 1,479 1,422 -3.8%
Dow 8,896 8,646 -2.8%
Dax 3,320 3,208 -3.4%

Global indices showed poor performance during the week. Both European and Asian markets were weak for want of direction from the US markets. Indian markets closed the week with a 2% gain mainly due to the surge seen on Friday. Indian stocks surged on Friday after the government announced that it was going ahead with its disinvestments plans. The government announced the details of the disinvestments of HPCL and BPCL. PSU counters surged on account of this news. Indian bourses are likely to remain buoyant in the coming week. Global indices may how ever look for direction from the US markets.

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