Market sentiments heading towards further optimism

The week concluded on a positive note with the All Share Price Index gaining WoW owing to gains witnessed across the board. The ASI gained 130.7 points WoW to close at 6,380.7 points (2.1%), whilst the S&P SL 20 Index gained 58.4 points WoW to close at 3,589.3 points (1.7%). Indices gained mainly on the back of the gains made by John Keells holdings (6% WoW), Nestle Lanka (8.1% WoW), Ceylon Tobacco (5.1% WoW), Sri Lanka Telecom (4.4% WoW) and Cargills Ceylon (5.2% WoW).

Sri Lankan stocks which witnessed a bearish momentum during the beginning of the week saw a revival towards mid week with institutional activity helping the indices to edge up to end the week on a positive note. Heavy retail and institutional activity was witnessed as at the end of the week with strategic transactions dominating turnover levels. Furthermore, the week witnessed the release of 1Q2013 earnings of most of the Banks. Majority of the banks witnessed a decline in their profitability largely owing to the slowdown in loan growth amidst the high market rates and the FOREX losses incurred due to the appreciation of the LKR during the quarter.

However, despite the unsatisfactory results of the sector, heavy investor play was witnessed in the banking sector during the week presumably because investors expecting an improvement in sector performance going forward with the market interest rates falling down. Re affirming this Banking, Finance and Insurance sector index witnessed a WoW gain of 0.5% while the sector contributed a circa of 33% to the weekly turnover.

Aitken Spence backed heavy institutional investor play during the week, which assisted the counter to top the list in terms of turnover adding circa 16.5%. John Keells Holdings also emerged among the top turnover list backed primarily by large scale foreign transactions. Counter witnessed a 6.0% WoW gain in its market cap while reaching an all time high of LKR285.00 as at Friday. Due to the high investor play witnessed in the above two counters the diversified index witnessed the highest WoW gain of 3.2% while the sector contributed 35% to the weekly turnover. During the week crossings were also recorded in counters such as Piramal Glass Ceylon, Dialog Axiata, National Development Bank, Commercial Bank and Sampath Bank. On the back of these developments, the week saw an average turnover of LKR1.2bn and an average volume of 42.9mn.

Furthermore, Piramal Glass Ceylon, Dialog Axiata, PC House , Free Lanka Capital Holdings and Aitken Spence topped the list in terms of volume traded during the week.

The week saw foreign purchases amounting to LKR3,159.8 mn whilst foreign sales amounted to LKR 1,572.1 mn. Market capitalisation stood at LKR 2,450.2 bn, and the YTD performance is 13.1%.


Conclusion: Borrowing costs trend downwards whilst foreign interest retained...


After a hesitant start on account of profit taking, the market continued its upward trend adding 2.1% WoW to its index value. This could be a delayed reaction to the Central bank’s decision to ease policy rates and its monetary policy stance. In response to the policy rate revision, Treasury bill rates in the primary and secondary offers dipped whilst the Central bank kept a tight hold on liquidity to prevent excess borrowings which could spur demand-pull inflation, as inflation currently remains at an elevated level.

Contemporaneously the LKR strengthened against the USD over the week and according to currency dealers, this could be as a result of commercial banks translating dollar holdings to LKR in order to increase the supply of domestic loanable funds. This development along with a drop in Banks’ average weighted prime Lending rate (AWPLR) subsequent to the policy rate revision suggests that demand for loans could be on the rise. This would have implications for the future earnings of banking sector counters, which could witness growth in their loan books (which witnessed a slowdown in 1Q2013) and result in higher earnings.

This would explain the continued interest witnessed in banking sector counters which witnessed a slowdown in 1Q2013 earnings primarily due to currency conversion effects and a slowdown in loan growth. This could in turn have a positive trickle-down effect on the rest of the sectors of the economy as the lower interest rate environment could galvanize firms to invest in expansionary activities which could result in value creation for equity holders. This could partly explain the continued foreign interest in the domestic equity market which recorded a high net foreign inflow of LKR1.6 bn for the week.
Source: Asia Wealth Management Research

Strong retail & institutional interest keeps CSE humming

The All Share Price Index on the Colombo Stock Exchange last week hit an intraday high of 6,400 points with strengthened investor sentiment – both retail and institutional – on the back of the previous week’s interest rate cut, Acuity Stockbrokers said in a market report yesterday.

The report noted that a 43 point loss early in the week was more than offset by a 171 point gain over the latter part of the week.

The All Share Price Index is now 12% up this year and market capitalization was up 11% on Friday topping Rs.2,400 billion, Acuity said.

Foreign activity too continued to gain healthily with inflows this year crossing Rs.10 billion as accumulation of blue chips, particularly JKH, continued.

Daily average turnover remained above the year-to-date average of Rs.1 billion driven last week by large deals in Aitken Spence, JKH and NDB.

"Similar upbeat sentiment is expected in the week ahead," Acuity said.

The ASPI was up 130.70 points over the week (2.09%) while S&P SL20 was up 1.65% (58.36 points).

Aitken Spence was the highest contributor to aggregate turnover last week with trades totaling over a billion rupees (16.47% of total turnover) while JKH accounted for 13.41% (Rs.824.4 million) and Commercial Bank 9.4% (Rs.577.8 million).

The week’s turnover at Rs.6.15 billion was down 41.97% from the previous week’s Rs.10.6 billion, the report said.

John Keells Stock brokers reported that the indices had risen sharply towards the latter part of the week with activity centered on diversified and banking counters fuelled by foreign participation resulting in a net inflow of over Rs.1.5 billion during the week.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=79346

By Paneetha Ameresekere

It’s sentiment and not fundamentals that’s driving the market, a market source said, referring to the gains made by the bourse at Thursday’s and Friday’s trading, after falling in the first two days of trading last week, and being flat on the third.

The gains made by the bourse on Thursday and Friday come in the backdrop of net foreign inflows (NFI) being virtually flat on Thursday, with the only significant foreign driver on that day being a ‘foreign to foreign’ transaction of Aitken Spence shares.

However, on Friday it was Com Bank and HNB that drove the market due to foreign interest in the same, he said. That is despite the fact that the pawning market is falling (see box).


But these two banks exposure to the pawning market is relatively small.

The fall in European markets has had made foreign funds to look at markets such as Sri Lanka after exhausting other options, that is what is boosting the bourse, the source said.

But on the flip side, the signals emanating from the local economy is not good, with retailers, such as those operating supermarket chains reporting a decline in sales due to the impact the cost of living is having on consumer purchasing power, he said.

Sales since last month have been poor, the source said.

It may not be wrong to say that it was foreigners who have been driving the market so far for the year, investing in selective blue chips such as JKH and also in the shares of certain blue chip banks, due to the Spartan choice of blue chips available for them to invest which figure is not more than the five fingers in one’s hand, he said.

Last week there had also been investments made into the equities of an importer of brand new vehicles, on rumours that the government is going to bring down vehicle import taxes in order to revive this flagging industry, crushed by various enhanced import duties and levies, instituted last year, in order to dissuade imports and thereby to avert a balance of payments crisis that had been threatening the economy.

But this threat is far from being over, with the island in the first quarter of this year experiencing a trade deficit of US$ 2.3 billion.

Thursday’s and Friday’s gains have also been made in the backdrop of poor first quarterly earnings by corporates, including that of banks, which are expected to become worse in the current quarter due to the impact caused to their top lines on account of increased in electricity prices (not least the fall in the pawning market), coupled with the belief that this electricity hike is going to further constrict consumer purchasing power.

“It’s not the 50 basis point policy rate cut made earlier during the month that has boosted the bourse, but sentiment,” the source emphasized. The theory is that a low yielding fixed income market would wean away investors from that sphere of operations to the bourse.

“We shall see these cycles, the bourse going up then comes down, with the next downturn expected this week due to profit taking,” he said.

The bourse at Thursday’s trading witnessed a NFI of Rs 85.08 million, thereby bringing in total NFI from 1.1.13. to 16.5. 13. to Rs 10.8 billion. Foreign inflows on Friday were not immediately available.

Europe’s negative bank returns have been given as the reason for increased foreign investments in markets such as Sri Lanka, where the local stocks in which such foreign investments have been made, having been identified as being good dividend paymasters as well.
http://www.thesundayleader.lk/2013/05/19/sentiment-not-fundamentals-drives-bourse/

http://www.sundayobserver.lk/2013/05/19/fin56.asp

Stock Market Review for the Week Ended 17th May 2013:

The Colombo bourse closed 2.09 percent higher from the previous week with S&P SL20 gaining 1.65 percent. A net foreign inflow of Rs. 1.58 billion was recorded during the week, with year-to-date net inflows amounting to Rs. 11.18 billion.

Current market sentiments are heading towards further optimism mostly due to prevailing low interest rates along with world markets performing significantly well. We may continue to see foreigners bulk-up on blue chips with retailers following suite.

After a reaffirming previous week, the Colombo Bourse witnessed a gradual decline on Monday slowing down the market rally. Both indices were in the red zone where the ASPI declining by 1.80% to close at 6,239 points while the more liquid S&P SL20 index lost 0.34% to close at 3,519. A slight recovery was witnessed towards the end of Monday but was insufficient to close the indices green. Total turnover for the day was recorded at a disappointing 535 Mn- a decline of 63.7% from Friday. JKH proved to be the highest contributed to the turnover capturing 23% of total. Price of JKH closed at LKR 269.90 (+0.60%) while the foreign stake of the counter increased by 427,143 shares. Softlogic Holdings PLC and Vallibal One PLC held the second and third respective spots turnover contribution-wise while the Diversified Holdings sector contributed mostly to the market turnover with a rise in sector index by 0.28%. Incidentally, the Banking, Finance and Insurance sector lost 0.86%. Foreign investors continued their interest displaying a buying sentiment, while the net foreign inflows amounted to LKR 153 Mn for the day.

Colombo Bourse Indices continued with its downward trend for the second consecutive day on Tuesday as retailers took up to go on a selling streak. The main index fell 0.52 % (32.44 points) to close at 6,207 points on its second day of losses while the S & P SL 20 index also declined 0.52% to close at 3,501 points. The market turnover for the day improved from Monday by 19% to record 6,207 Mn where JKH was yet again the highest contributor to the overall market turnover capturing 16% of the total. Consequently National Development Bank and the Nations Trust Bank ranked hotspots in the turnover scale as second and third highest contributors respectively. However, Tuesday’s turnover was well below this year’s daily average of Rs 1.02 Bn. Top gainers for the day were Colonial Motors, Dimo and Sigiriya Village while Serendib Englineering Group, Harischandra and SMB Leasing were recoded as top losers for Tuesday. Foreign investors continued to lurk around as primarily as buyers with a net foreign in foreign inflow amounting to Rs 155 Mn extending the net foreign inflow for this year to Rs 9.9 Bn.

Market ended under mixed sentiments on Wednesday as most of the banking sector counters excluding Hatton National Bank and Seylan Bank witnessed drop in prices. Commercial Bank declined by LKR 1.10, Sampath Bank by LKR 2.00, and National Development Bank by LKR 4.10. In return, Investor interest was diverted towards Motor sector counters such as Colonial Motors rose by LKR 9.90, United Motors up by LKR 5.40 and Diesel & Motor Engineering increased by LKR 4.60 at market closing. The main ASPI advanced by 14.53 points to close at 6,221.12 while S&P SL 20 Index dropped by 2.16 points to close at 3,498.34. The total market turnover bounced back and was recorded at Rs 1.7 Bn, an increase of 166% from Tuesday. Top contributors to the turnover were John Keells Holdings by LKR 443.4mn, National Development Bank by LKR 379.4mn and United Motors by LKR 123.8mn and subsequently, the Bank Finance Insurance, Diversified Holdings and Motors sectors arose as notable contributors to Wednesday’s turnover. Foreign participation at the end of the day amounted to 39% from total market activity while a net foreign inflow of Rs 859.9 Mn.

The Colombo Bourse on Thursday witnessed a surge in confidence as a continuous upward trend was witnessed throughout the day mostly driven by large-cap counters regaining their institutional, high net-worth and foreign interest and low interest rates. The total Bourse value rose by Rs 30 Bn hitting a one and a half year high on Thursday where we saw market capitalisation surpass the Rs 2.4 Tn. ASI peaked an 18 month high with a 1.1% (65.88 points) increase to 6,287 while the S&P index increased by 0.9% (33.03 points) to close at 3,531.37. Market turnover for Thursday reached Rs.1.9 bn, out of which 62% was accounted by crossings by Piramal Glass, Aitken Spence, Dialog and Commercial Bank. Top contributors to the turnover were Aitken Spence (Rs.1.0bn), Commercial Bank (Rs.153mn) and Piramal Glass (Rs.76mn). Foreigners maintained their position as net buyers with an inflow of Rs.85mn. Notably, foreign participation accounted for 66% of the turnover while net inflow was seen on counters such as Piramal Glass, Dialog and John Keells.

The market opened on Friday displaying a buoyant, positive outlook throughout the day. We witnessed a surge in the main index ASI by almost hundred (93.70) points, a gain of 1.5% to close at 6,380.70 points. The more liquid S & P SL 20 index rose by almost sixty (57.89) points, an increase by 1.63% to close at 3,589.26 points. Market turnover for the day surpassed Rs 1.4 Bn for the second consecutive day with the overall market sentiment heading towards a positive direction. The total turnover was aided through several crossings by Dialog, Commercial Bank and HNB. Consequently, the Banking, Insurance and Finance sector index regaining its momentum from an increase of 1.4% contributing the highest percentage to the overall turnover. Foreigners continued their buying spree for the week with a net foreign inflow of Rs 335 Mn recorded for Friday.

In the backdrop of this prevailing positive market sentiment, we are particularly bullish on TJL, Textured Jersey Lanka, NTB and Access Engineering. With constructive earning growth levels, TJL is the newest addition to the billion dollar profit league with their FY13 net profit levels surpassing the Rs 1 Bn milestone- a 62% increase year-on-year. TJL also maintained a generous dividend policy and paid out an interim dividend of 0.66 per share in March 2013. NTB has maintained solid margins based on their first quarter results released recently with a net interest income loan growth of 21% and a moderate loan growth of 6% quarter-to-quarter.

(Courtesy: Innovest Investments (Pvt) Ltd – an Investment Management Company licensed by the Securities & Exchange Commission of Sri Lanka)
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=79399

With all classes of investors either active or returning, the Colombo stock market last week enjoyed sustained momentum with a 130 point gain in benchmark All Share Index and net foreign inflow reaching the Rs. 11 billion mark.

The indicative downward regime in interest rates, resilient corporate earnings and robust net foreign buying are key reasons for the rebound in the Colombo Bourse of late. Year to date the ASI has given a positive 13% return whilst the blue chip S&P SL20 Index has gained by over 16%. The market is trading at 18 month high as well.

Following are some of the highlights of stock broker comments in their weekly reports.

Softlogic Stockbrokers
Positive vibes spurred the Bourse as the interest rates slash down brightened investor confidence strengthening accumulation. Foreign interest highlighted YTD net inflow of Rs. 11 billion.

As the quarterly earnings season commenced, majority of banks encountered a dip in 1Q2013 earnings due to large forex gains recorded in comparative quarters hence we advise investors not to be misled as a considerable growth in earnings was recorded on a normalised basis. We continue to be positive on the banking sector as the key listed players continue to trade at single digit PERs.

LOLC Securities
The market remained sluggish for the first two days while foreign participation was almost at negligible levels. Foreign investors came in to the play by Wednesday marking YTD Net foreign inflows Rs. 10 billion. Market started to rally since Thursday while at the end of the week ASI had gone up by 2.41% for the week. YTD net foreign inflows reached Rs. 11 billion by the end of the week.

Thirty-one crossings were recorded during the week out of which JKH recorded crossings of 1,499,403 shares at the range of Rs. 270-275. Other crossing makers were SPEN, CARG, COMB, DIAL, NDB and GLAS. Crossings contributed around 43% to the market turnover during the week.

Banking, Finance and Insurance sector contributed mostly to the market turnover while Stores and Supplies sector was the best sector index gainer with a gain of 12.27%.

JKH contributed mostly to the ASI growth (33.52 points) while CTC, SLTL and NEST contributed 19.92, 7.53 and 5.87 respectively. CINS dragged down the index by 2.09 points.

Acuity Stockbrokers
The market continued its uptrend as a 43 point loss early in the week was more than offset by a 171 point gain over the latter half of the week. Strengthened investor sentiment – both retail and institutional – on the back of last week’s interest rate cut along with strong gains by index heavy-weights helped the ASPI hit an intra-day high of 6400 on Friday and pushed the Y-T-D return on the benchmark index to 12% (cf. -7% in FY 2012).

Overall market value also reflected similar positivism with market capitalisation surpassing Rs. 2,400 billion on Friday to record a Y-T-D gain of 11%. Foreign activity meanwhile, continued to record healthy gains with Y-T-D net foreign inflows crossing Rs. 10 billion as accumulation of blue chips – particularly JKH – continued. Daily average turnover value meanwhile, remained above the Y-T-D average of Rs. 1 billion driven by large deals in Aitken Spence, JKH and NDB. Similar upbeat sentiment is expected in the week ahead.

Corporate earnings for the quarter-ending March have begun trickling in, with approximately 48% of the 25% corporates reporting thus far recording Y-o-Y gains in quarterly earnings. Meanwhile, interest rates, which have been a focal point for markets over the past few sessions, fell further this week following last week’s
policy rate cut.

Benchmark Treasury yields across all maturities declined further this week, with rates on the 6M-Treasury down 29 bps to 9.91% while weighted average yields on the 3M and 1Y treasuries fell 43 and 45 bps respectively. Prime lending rates (PLR) were also lower, with the weighted average 1-week PLR down 36bps at 13.12%. Money market liquidity which has been consistently strong since January however, declined for the first time in 18 weeks, recording a deficit of Rs. 1.1 b. Consequently, inter-bank call money rates were marginally up by one bps.

Asia Wealth Management
After a hesitant start on account of profit taking, the market continued its upward trend adding 2.1% WoW to its index value. This could be a delayed reaction to the Central bank’s decision to ease policy rates and its monetary policy stance. In response to the policy rate revision, Treasury bill rates in the primary and secondary offers dipped whilst the Central bank kept a tight hold on liquidity to prevent excess borrowings which could spur demand-pull inflation, as inflation currently remains at an elevated level.

Contemporaneously the LKR strengthened against the USD over the week and according to currency dealers, this could be as a result of commercial banks translating dollar holdings to LKR in order to increase the supply of domestic loanable funds. This development along with a drop in Banks’ average weighted prime Lending rate (AWPLR) subsequent to the policy rate revision suggests that demand for loans could be on the rise.

This would have implications for the future earnings of banking sector counters, which could witness growth in their loan books (which witnessed a slowdown in 1Q2013) and result in higher earnings. This would explain the continued interest witnessed in banking sector counters which witnessed a slowdown in 1Q2013 earnings primarily due to currency conversion effects and a slowdown in loan growth. This could in turn have a positive trickle-down effect on the rest of the sectors of the economy as the lower interest rate environment could galvanise firms to invest in expansionary activities which could result in value creation for equity holders. This could partly explain the continued foreign interest in the domestic equity market which recorded a high net foreign inflow of Rs. 1.6 billion for the week.

DNH Financial
With the ASPI now up 14.3% on an YTD basis (in dollar terms), we expect the bourse to trade sideways (with an upward bias) during the coming week before re-rating again. As such we advise investors to use the current price weakness to pick up attractively priced growth stocks but by however entering the market in an informed manner. We also expect foreign participation to accelerate with blue chip counters likely to remain in focus given that several large quality stocks in Sri Lanka at current levels appear to be more attractively priced than their counterparts in competing emerging/frontier markets.

While we concede with the fact that most investors have largely been sitting in the wings over the last several months in anticipation of a market trigger that would propel the market to the next level, with the 1Q2013 corporate reporting season having now commenced, we advise investors to refrain from assuming any speculative positions but concentrate on carefully selecting counters that will benefit from the robust domestic consumption story and report sustainable earnings growth and healthy cash flows.
http://www.ft.lk/2013/05/20/bourse-gains-130-points-ytd-net-foreign-inflow-reaches-rs-11-b/

no need to fear as far as foreigners are net buyers.

As usual wrong advise.I think from Monday things will be different.