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Pessimism rules... - Views on News from Equitymaster
 
 
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  • Dec 21, 2002

    Pessimism rules...

    After the sizzle last week, Indian bourses ended more or less flat this week. The trend was in line with the global indices, which too saw little variation. Renewed fears of US-Iraq conflict kept global investors worried. Meanwhile, the JPC report unveiled in the parliament, was nothing out of the ordinary and seemed to have achieved little to allay investor concerns.

    The week was a landmark for the Indian currency. The rupee continued to gain strength against the dollar. The weakening dollar is worrying global investors. Consequently, the week saw gold prices touching a 6-year high at near US$ 350 levels per ounce. Also, crude prices went past US$ 30 per barrel owing to the crisis in Venezuela, which has cut crude output. Venezuela is the world’s 5th largest oil producing country. However, with the new year approaching, we may seen an abatement of war concerns as the western countries get into the holiday season.

    There were a few positives for India Inc. this week. The big one was of course, Dr. Reddy’s winning the patent case against Pfizer in US courts. This together with the slated commercial launch of ‘Cipro-XR500’ by Bayer (which triggers royalty payments for Ranbaxy), led to investors once again focusing on the domestic pharma sector.  

    Also, banks continued to be in the limelight owing to the perceptible gusto with which the sector was looking at recovering its NPAs from defaulters. However, the key gainers this week were the small banks. Investor sentiment was geared towards possible M&As or strategic investment taking place among them. Going forward, we believe that valuations will perk up only for the best in the business and only when profits continue to come in and NPAs are actually whittled down. What we are seeing now seems unsustainable in the medium term.

    Software had its share of the limelight too. This week HCL Technologies bought over the software exports business of HCL Infosystems. With this, the former continues to expand its software services folio and the later has now become a pure hardware company. This deal seemed tilted in favour of HCL Technologies and we felt that its other sibling got a raw deal. The Polaris chief’s arrest in Indonesia highlighted the need for Indian service providers to study their clients more closely as well as be prudent while giving commitments.

    Towards the weekend the sector got another jolt when the state of New Jersey, USA, passed a law against outsourcing BPO services to foreign soil for government contracts. This has raised fears that more states could follow suit and that this opposition may expand to private contracts as well. The move seems to have nipped atleast some optimism towards the ITES (Information Technology Enabled Services) potential and consequently, we may see a correction in the sector in the coming week.

     

     

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