• MARCH 17, 2001

Infy stands out

The US markets crashed this week on the continued fears of recession and non-stop earnings warnings. Almost all the frontline stocks hit new 52 week lows. The slide in the markets wiped off billion of dollars of investor wealth. The negative flow of news in the US markets continued which pulled the Dow below 10,000 for the first time since last October.

To begin with companies including Ericsson (the world’s third largest mobile phone maker), Cisco, McDonald Corp., Compaq and Oracle warned of a quarterly earnings slowdown. Most of the companies also announced massive job retrenchments. Financial stocks were hit hard after a major international rating agency expressed concern about the depressing financial situation of Japanese banks. Ciena Corp. (optical networking equipment maker) and Nokia however, gave some hope by indicating that they are likely to meet quarterly earnings targets.

The news on the economic front showed a mixed sentiment. Retail sales in the month of February fell for the first time since November ’00. On the other hand consumer sentiment index climbed to 90.8 in March from 90.6 in previous month. Economists had expected the index to fall to 89.5.

Infy shines
(Price in $) 10-Mar-01 17-Mar-01 Change
Infosys 66.8 71.0 6.4%
ICICI 12.3 11.7 -5.0%
Rediff 3.4 3.1 -9.3%
ICICI Bank 8.0 7.2 -10.5%
VSNL 14.0 12.5 -10.9%
Wipro 43.5 36.3 -16.6%
Silverline 5.2 4.0 -22.6%
Satyam Infoway 3.9 3.0 -23.8%

The markets did not spare Indian ADRs too. Sify, Silverline and Wipro were the major losers. The liquidity on most of these counters declined substantially.

Surprisingly, Infosys was up by 6.4% over the week. This was despite nervousness in the tech stocks on the NASDAQ. Infosys issued a statement that its business plans has not been affected by the global slowdown. As the global companies are increasingly looking to cut IT spending, they are more likely to outsource their technology requirements from Indian firms. This is likely to help them in reducing costs, as billing rates in India are comparatively low.

Aetna, a leading provider of healthcare insurance in the US had decided to double its business with Infosys. According to Aetna, it’s taken a decision to outsource more business to Infosys because it had delivered quality business at low costs. Currently, Aetna the fourth largest customer for Infosys, accounts for 2% of Infy’s business and by the year-end the figure is expected to shoot up to 4% (around Rs 706 m).

One of the key foreign investment bankers also forecasted a positive outlook for the Indian IT stocks. These positive news helped in lifting the sentiment in the Indian tech major Infosys.

VSNL also attracted some buying support early during the week. This was on the news that the Cabinet Committee on Disinvestment (CCD) has decided to complete the privatisation of the company by December 31, ’01. However, the stock failed to maintain the buying interest and ended lower by 10.9%.

ICICI group companies were in the limelight during the last two days of the week. ICICI has divested a 5% stake in its subsidiary, ICICI Bank, to Prudential Assurance Company Ltd. at an average price of Rs 170 (US $ 7.3 per ADR). This has fueled the buying interest in both ICICI and ICICI Bank. ICICI gained an amount of Rs 1.7 billion through this deal, which it can use to write off its non-performing assets. Otherwise the capital gains are expected to increase its net profits by more than 10% in the current year.

There seems to be no catalyst for the markets to drive the stocks up. The investors are keenly waiting for the Fed’s meeting on March 20, which could come as a lifesaver for the sliding markets. The policy makers are expected to announce an interest rate cut of 75 basis points.

Global crash
Indices 10-Mar-01 17-Mar-01 Change
NASDAQ 2,053 1,891 -7.9%
Dow 10,645 9,823 -7.7%
Hang Seng 14,194 13,522 -4.7%
Nikkie 12,628 12,233 -3.1%
BSE 3,882 3,746 -3.5%

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