The Bourse Weekly Performance (Week ended October 17th,2013)

Colombo stocks started the weekly operations with marginal gains in both indices. ASI gained 5.20 points (+0.09%) and S&P SL20 Index gained 5.12 points (+0.16%). Daily market turnover reached the 13-week low of LKR 233mn. Touchwood Investments recorded the highest turnover of LKR 28mn followed by Ceylinco Insurance (LKR 23mn) and Lanka IOC (LKR 13mn). Speculative Touchwood Investments, Swarnamahal Financial Services and Colombo Land & Development were the mostly traded stocks during the day. Foreign participation was low at 10% whilst recording a net inflow of LKR 12mn.

On Tuesday Colombo bourse closed in green territory. ASI gained 9.36 points (+0.16%) and S&P SL20 Index gained 1.84 points (+0.06%). John Keells Holdings – Rights commenced its trading on Tuesday and attracted heavy investor interest during the day. Market turnover reached LKR 2.5bn which was far above the year-to-date average daily turnover of LKR 877mn. This hefty turnover was recorded mainly due to the negotiated deals in John Keells Holdings and John Keells Holdings – Rights. Accordingly top two turnover levels were recorded from John Keells Holdings (LKR 1.1bn) and John Keells Holdings – Rights (LKR 995mn). Further Sampath Bank recorded the third highest turnover of LKR 68mn. Touchwood Investments, York Arcade and Textured Jersey were among the heavily traded stocks. The proposed investor repayment plan of Touchwood Investments failed to increase the retail investor interest as the stock closed with no price change. Meanwhile Taprobane Holdings announced a Rights-issue of 01 for 03 shares. Foreign participation for the day was 33% whilst foreign investors were net buyers with a net inflow of LKR 696mn.

Market was closed on Wednesday due to Eid festival.

The Colombo equity market wrapped the weekly operations on Thursday with positive returns as benchmark All share price index advanced by 14.53 points (+0.24%) to close at 5,976.51 and S&P SL20 index gained 18.42 points (+0.56%) to close at 3,309.00. Price advancements in Ceylon Tobacco by LKR 20.50 (+1.18%, LKR 1,150.00), Carsons Cumberbatch by LKR 13.60 (+3.47%, LKR 405.00) and Ceylon Theaters by LKR 12.10 (+8.35%, LKR 157.00) contributed positively to the market performance.

John Keells Holdings emerged as the top contributor with LKR 227mn and John Keells Holdings-Rights was the second best contributor with LKR 135mn underpinned by negotiated deals recorded during the session followed by Sampath Bank with LKR 23mn. Off-the-floor deals were recorded in John Keells Holdings where approx. 0.75mn shares changed hands at a price of LKR 217.00-218.00 and John Keells Holding-Rights approx.0.80mn shares changed hands at a price of LKR 66.00.

Market turnover was LKR 546mn. John Keells Holding-Rights (closed at LKR 62.30,-3.9%), Touchwood (closed at LKR 4.80,0%) and MTD Walkers (closed at LKR 31.40,+6.1%) managed to attract heavy investor interest. Cash map closed at 48%. Foreign investors were net sellers for the day with an outflow of LKR 28mn. Foreign participation was 26%. Net foreign outflows were seen in counters such as John Keells Holding-Rights (LKR 70mn), HNB non-voting (LKR 7mn) and Tokyo Cement (LKR 3mn).

On Tuesday Central Bank of Sri Lanka reduced policy rates corridor by 50 basis points lowering its repo rate to 6.50% and reverse repo rate to 8.50% to boost credit. Going forward this may reduce the market interest rates gradually, which may draw back the investors to the stock market. Currently CSE is trading at a PE of 12.0x, which is 2.4% discount to the MSCI frontier market index PE and 20% discount to the MSCI frontier emerging market index PE.

The Bench mark index gathered momentum throughout the short trading week to end the week on a positive trajectory. The ASI gained 29.1 points WoW to close at 5,976.5 points (+0.5%), whilst the S&P SL20 Index gained 25.4 points WoW to close at 3,309.0 points (+0.8%). Indices benefited mainly on the back of gains made by CT Holdings (+10.6% WoW), John Keells Holdings (+1.1% WoW), Bukit Darah (+2.2% WoW), Sampath Bank (+4.4% WoW) and Carson Cumberbatch (+1.3% WoW).

Majority of the Sri Lankan stocks ended the week in green with the bench mark ASI witnessing marginal gains, whilst activity levels remained low due to two days of holidays. Retail participation was concentrated on few small cap counters, whilst institutional, high net worth and foreign participation was evident on selected blue chip counters including banking sector counters, bringing a net foreign inflow of c. LKR680 during the week, whilst the YTD net foreign inflow surpassed the LKR22bn mark. Meanwhile, John Keells Holdings’ rights commenced its trading on Tuesday and commanded heavy foreign and local participation, whilst the ordinary voting share also continued to be amongst the hot picks by institutional and foreign investors.

Further, the Monetary board of the CBSL made a 50bps cut in monetary policy rates despite the IMF insisting on structural reforms to boost economic activities rather than relaxing monetary policies. However, we expect the reduction in market interest rates to be favorable towards the corporate earnings and the equity trading activities. Meanwhile, world stock markets cheered the debt ceiling deal as the US law makers approved legislation that would end the US government‟s partial shutdown and raise the debt ceiling. However, concerns over this short term deal remain high as it would fund the US government until 15 January 2014 and suspend the debt limit until 7 February 2014. Hence, analysts continue to fear that the default threat could reemerge in February 2014 as the US Treasury department approaches its extended borrowing
limit.

During the week crossings contributed c. 73% towards the week‟s turnover where counters such as John Keells Holdings, John Keells Holdings-rights, Textured Jersey, Sampath Bank and Hatton National Bank encountered crossings.

Furthermore, John Keells Holdings-rights, Touchwood, John Keells Holdings, PC House and Textured Jersey topped the list in terms of highest volume traded stocks during the week.

Further, Sampath Bank made an announcement during the week regarding debenture issue of LKR25mn at LKR100 with an option to issue up to further LKR25mn in the event of over subscription, whilst it is subject to the necessary regulatory approvals.

The week saw foreign purchases amounting to LKR 1,346.2 mn whilst foreign sales amounted to LKR 666.1mn. Market capitalisation stood at LKR 2,485.3bn and the YTD performance is 5.8%.

Conclusion: The drop in August credit would have triggered the policy rate cut…

Central Bank brought down the policy rates by 50 basis points during the week lowering the repo rate to 6.5% and reverse repo rate to 8.5% indicating the bank‟s commitment to raise the volume of investments and real growth in the economy. The marginal drop in loans and advances of the banking sector in August would have caused the Central Bank to cut rates so sharply despite the approximately USD 1.5 billion interest payments on external debt scheduled for the year for both private and public borrowings, which could exert pressure on external financing.

According to the data released by the CBSL to the banking sector, the month of August saw loan disbursements by the banking sector contract by LKR 7.8 billion compared to LKR 73.5 billion increase in July while the deposits and borrowings increased 1% MoM and 5.8% MoM respectively.

On account of these changes the banking sector loans and advances contracted 0.2% MoM in August compared to the 2.2% increase in July.

The drop in loans and advances of the banking sector in August this year was not witnessed since the contraction in 2009. This also indicates that the asset structure of the banking sector is shifting towards government securities from credit to private sector. The deceleration of the credit growth coupled with the increase in deposits under the current interest rate regime would have prompted the monetary authority to cut policy rates significantly. In this light we expect the reduction in interest rates to increase the attractiveness of equity securities and support the equity trading activities at the Colombo Bourse. Thus, we continue to urge investors to take positions in fundamentally sound counters trading at attractive price levels.
Source: Asia Wealth Management Research
To read full report -
http://research.srilankaequity.com/t841-17-10-2013-weekly-review-asia-wealth-management-co-ltd#957

http://www.sundayobserver.lk/2013/10/20/fin53.asp