Sunday, January 17, 2010


Indices close modestly high on volatile trading

Volatility continued this week amid signs of positive sentiment being witnessed towards the latter part of the
week. The market saw indices being relatively flat on Monday while Tuesday saw the indices falling. The ASPI (All Share Price Index) closed the week at 3563.1 points up by 48.5 points or 1.4% Week on Week (WoW).Meanwhile the MPI (Milanka Price Index) too retained a similar trend to close the week at 4099.3 points, up by 59.9 points or 1.5% compared to last weeks closing levels.
JKH continued to remain the highest contributor towards weekly turnover, managing a contribution of Rs.762.4 million for the week. A 0.6% WoW fall in share price was observed during the week with prices closing slightly low at Rs.179.00 per share. The counter traded within the range of Rs.178.00 and Rs.180.50 per share for the week, trading 4.3 million JKH shares for the week.
Renewed interest was witnessed in Environmental Resources Investment (GREG) this week with 5.8 million of its shares being traded. Investors showed significant reaction to the announcement of 1 for 2 Rights issue with attached warrants on GREG on Tuesday, leading the counter to close the week with notable gains. The counter closed at Rs.119.25 per share with the share price reaching a high of Rs.132.00 per share and a low of Rs.70.00 per share for the week. Contribution from GREG towards weekly turnover amounted to Rs.600.9 million.
Apart from this renewed interest was observed in Ceylon Leather Products (CLPL). Week saw 411.8 million shares of CLPL being traded with the bulk of the quantities being traded towards the latter part of the week. The counter closed the week at Rs.109.75 per share, reaching a high of Rs.133.00 per share and a low of Rs.55.50 per share. CLPL was the third highest contributor towards weekly turnover contributing Rs.411.8 million for the week. The stock came amongst the week’s best performers, reflected by the 96.0% gains posted.
Turnover for the week stood at Rs.6.1 billion while the average daily turnover for the week stood at Rs.1.5
billion compared to Rs.2.2 billion posted during last week. The major contribution of Rs.2.2 billion came on
Wednesday with turnover being sizably high due to GREG contribution.
Foreign purchases amounted to Rs.1.0 billion this week,while foreign sales totaled to Rs.1.2 billion resulting in a net foreign outflow of Rs.229.9 million. During the week foreign participation stood at a low of Rs.18.4% of total activity.

Volume based highest traded stocks for the week was Kshatriya Holdings, East West, Environmental Resources,Renuka Agri and JKH.

Strong “Sentiment” powers to drive the MARKET

 Despite the fact that the Colombo Bourse is heating up based on fundamentals, “sentiments” have been propelling the Bourse to move up. The thirty year blood shed coming to an end, expectations of the economy picking up and invariable spill-offs on the corporate earnings, favorable December quarter earnings expectations, world economy recovering during 2010 and expected sustainable political stability have been few of major "sentiment" points.

Hence, the following points are to be noted,

The end of the war has definitely brought hope of economic revival to the island nation. The immediate
effect should come in as savings on war expenditure and sustained peace causing economy to boost (eg: tourism recovery, FDI flows etc.). However, despite the tourist numbers increasing the real impact was not been seen due to the world economy recovering from the financial crisis. Further, we still have not seen the FDI’s picking up. The prevailing political clout could be the reason.Further, though the monetary base looks stable with low interest rates and low inflationary pressure, we should be cautious on the fact that inflation bottoming up during 2010. Albeit, the stable monetary outlook the country still lacks fiscal discipline. We will have to improve on our fiscal deficit going forward, by way of curbing unnecessary recurrent expenditure and focusing predominantly on the capital investment.
The world economy is expected to recover towards the end 2010 and further during year 2011. Thus,consumption power is yet to recover. Hence, local exports would pick up in commensuration (eg: the plantations and the manufacturing counters; which would be more export oriented).
A favorable earnings expectation for the December quarter is a definite fundamental boost for the market.However, we should be cautious that over buying would out pace the value appreciation to be caused through the earnings appreciation.
Speculation on the presidential elections, also has contributed majorly towards the current up beat of the market.However, it is noted that the presidential election would be followed by a Parliamentary elections, hence,despite any candidate coming in to power at the presidential polls, further uncertainty and major government expenditure would continue up to the next parliamentary poll. Thus, if the elected president does not commence working on the immediate election promises, the delay on the recovery of the economy would continue. Also, stemming from the heightened government expenditure, we have witnessed a bottoming up of the treasury rates during the last few weeks. This could also be a detriment to the Bourse.

However, despite the fundamentals, we expect the market to react purely on sentiment. Also, we could expect the profit taking occurring in small pockets now and then, between market climbs.
As mentioned in our previous “Weekly” albeit, the market as a whole looks to be heating-up based on sheer
fundamentals, there are strong counters one could look to invest other than the overheated speculative counters.

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