Monday, May 6, 2013

Bourse toasts topping of 6,000 points by ASI

The crossing of the psychologically important 6,000 points level by the Colombo Bourse’s benchmark All Share Index (ASI) on Friday has been roundly welcomed by brokers who viewed the milestone as very encouraging in the background of existing and impending favourable market conditions.

 Given the precarious situation in which the Colombo stock market was languishing early last year leading to two years of dips, the level at which it has slowly yet steadily has climbed to, has been commended by all.

“The market is gradually gaining the once lost confidence and credibility. The downward trend in the interest rate scenario is another positive stimulant along with favourable outlook for the economy and corporate earnings,” analysts told the Daily FT.

 Some however are not equally positive or optimistic as they point to depressed business sentiments in the first quarter, electricity tariff hike, weak asset growth in banking sector and slower than anticipated downward trend in interest rates.

 Whilst the Treasury and the Central Bank are forecasting above 7% growth in GDP for 2013, multilateral agencies and private analysts are estimating a much lower improvement in the economy as local and external challenges remains difficult.

 Despite the gloomy outlook of some, the more meticulous foreign investors remain bullish judging by the year to date net inflow nearing the Rs. 9 billion mark. The return of retailers in relatively large numbers during the past few weeks has boosted the Bourse as well though there is much ground to be covered in comparison to bull runs of 2009 and 2010.

 The fact that the ASI has reached its highest level in 16 months and up 6.6% year-to-date as opposed to 8.5% dip in 2012 have encouraged capital market stakeholders. The blue chip S&P SL 20 Index by Friday has shown double digit growth as well.

 LOLC Securities said the week started with a slowdown of the previous week’s rally while on Monday, indices closed marginally positive. On Tuesday the Bourse closed on a mixed note and crossings pertaining to CLND raised the turnover. TWOD came in to play on Thursday while being the highest turnover contributor.

“A sudden rally could be seen at the latter half of Friday, with the ASI closing above 6,000 providing a positive end to the week,” LOLC Securities added.

 DNH Financial said whilst the Bourse crossing its psychologically important 6,000 level was certainly encouraging, it believes that this was definitely positive news and in time for the release of 1Q2013 corporate results which are expected to be strong for a number of blue-chip counters.

“Fundamental domestic investors may be benefited as valuation metrics display more dispersion to appropriately reflect varying corporate growth prospects thereby allowing investors to select and build a robust portfolio of quality stocks before mispricing are corrected and valuations rerate to market multiples. However, better than expected corporate earnings from blue chip counters could result in an inflection point with market sentiment improving,” DNH said.

 The question facing many investors now is whether to continue to sit in the wings or be adequately positioned to be a part of the upcoming earnings cycle.

“While short-term profits are difficult in current market conditions, we believe that finding companies that are undervalued with growth drivers is likely to produce positive returns in the medium to longer term. Consequently, we advise investors to use the current opportunity to review their portfolios in order to ensure that their allocations continue to reflect their risk appetite, investment goals and horizon while also using the price weakness in the market to cherry pick blue chip counters,” DNH Financial added.

 Asia Wealth Management said favourable trade data and monetary sector expectations have sustained activities at the Colombo Bourse.

“The week saw both indices ending in green possibly assisted by the expectations of a stronger LKR and lower interest rates following the upward revision of electricity prices by government authorities,” it said.

 Furthermore, trade data for February 2013 indicates that the deficit in the trade account declined significantly by 20.3% YoY during the first two months of 2013 while net inflows to Government securities grew as much as 102.4% YoY to $ 1.2 billion indicating the positive sentiment of foreign portfolio investors on the prospects of the Sri Lankan economy.

“On the back of these developments the Colombo Bourse witnessed a positive momentum and a significant increase in both indices,” Asia said.

“However, on the other hand, exports receipts for the first two months of 2013 fell 10.7% YoY to $ 1.5 billion mainly on the back of drop in industrial exports and the gross official foreign reserves of the monetary authority fell slightly to $ 6.7 billion in February from $ 6.9 billion in January.

Furthermore, the 15.6% YoY drop in imports expenditure during the period under review is also likely to impact the revenue growth of the Government given that approximately 60% of Government tax revenue is derived through the imports trade,” Asia Wealth pointed out.

Softlogic Stockbrokers said: “The Bourse hovered around the 6,000 landmark during the week accumulating sufficient buying power to pass through. However, on Friday the index surpassed the key level and closed at 6,013 which is a psychological victory for most analysts.”

 “We notify investors to stay on the sidelines and stay patiently to see whether the resistance near 6,000 is broken and holds before entering into the market and shift focus primarily on the growth counters which did not have clear movements, with the forthcoming earnings season. We are biased towards Sampath Bank and Nations Trust Bank which have not had any major uptrend in the recent past,” Softlogic opined.

 Acuity Stockbrokers noted that the market hitting a psychological high this week, with the benchmark ASPI surging past the 6,000 level was after a 16-month hiatus.

“Despite profit taking early in the week pushing the ASPI lower, renewed investor confidence towards end week propelled markets 64.7 points higher,” it added.

“Foreign inflows to the bourse meanwhile continued to improve with Y-T-D net inflows reaching Rs. 8.75 billion. We expect similar sentiment to dominate the week ahead,” Acuity Stockbrokers added.

 According to Lanka Securities out of the total of 78 market days this year, foreigners have been net buyers for 54 days (i.e. 69% of the time).
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