• DECEMBER 18, 2004

Global markets: A mixed week…

The US markets closed this week on a positive note amidst rising crude prices and negative news announcement on the corporate side, especially from the major pharma companies. We take a closer look at the performance of the same as well as that of Indian ADRs during the week.

ADR action…
As is evident from the table below, MTNL was the major gainer during the week. The stock has been gaining ground off late on the back of merger talks with BSNL, the other pan-Indian state-owned telecom major with an estimated market share of more than 90% in the fixed telephony segment. Since MTNL has the license to provide telecom services in Mumbai and Delhi only, where penetration levels are the highest, growth prospects are limited. With the advent of increased competition, it is losing out its standing on the fixed telephony segment as well. While MTNL’s initiatives on the mobile telephony segment have been encouraging, consistency is lacking, which has impacted financial performance. Also, while cash flows continue to remain strong, growth is difficult to come by. But investors seem to be lapping up the share in anticipation of the merger, which is uncertain for now. On the other hand, Rediff and Sify, the two leading Internet portals in the country were among the key losers after gaining ground the week ended December 10 2004.

ADR 13th Dec'04 17th Dec'04 Change
Rediff 9.5 8.5 -10.8%
Sify 6.3 6.1 -2.7%
Satyam Computers 24.1 24.0 -0.4%
ICICI Bank 19.2 19.5 1.7%
Dr. Reddy 18.6 19.1 2.9%
Infosys 67.5 69.5 2.9%
Wipro 24.2 25.0 3.3%
HDFC Bank 38.9 40.3 3.6%
Tata Motors 10.9 11.3 4.0%
VSNL 9.6 10.0 4.2%
MTNL 7.2 7.9 8.6%

US economy…
The key event of the week was the Federal Reserve meeting, following which the federal fund rate was increased by yet another 25 basis points. Following this hike, the US interest rates have gone up by 125 basis points (1.25%) in the past one-year. The statement by the Federal Reserve Governors reads, "The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal. With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured." It is widely expected that the ‘measured’ stance will mean that the upward trend in federal fund rate is likely to continue in the next calendar year as well.

Besides economic performance, two important announcements from Pfizer and Merck shook the markets. Pfizer’s announcement with regard to its drug ‘Cerebrex’ (estimated sales of US$ 2.5 bn in the US market) and Merck’s fallout of the ‘Vioxx’ pullout continues to have an impact on investor sentiment. After weakening for most of the first half of the December, crude prices hardened on the back of production cuts announcement by the OPEC and concerns with regard to the inventory levels in the US.

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