Banking & Finance sector highest contributor to the week’s total turnover

Source: LSL Insight w/e 22/11/2013

The Colombo stock market which witnessed haphazard movement throughout the week peaked during Tuesday and lost enthusiasm thereafter, to close in the red territory, whilst foreigners became net buyer during the week. The ASI lost 18.3 points WoW to close at 5,792.7 points (-0.3%), whilst the S&P SL20 Index gained 23.2 points WoW to close at 3,197.9 points (0.7%). Indices dipped mainly on the back of losses made by Ceylon Guardian Investment (-8.9% WoW), Aitken Spence (-3.1% WoW), Ceylon Tobacco (-0.5% WoW), Dialog Axiata ( -1.1% WoW) and Aitken Spence Hotel Holdings (-3.5% WoW).

The overall performance of the stock market remained stagnant during the week whilst several crossing were witnessed over the week. The budget presented on Thursday lured mixed sentiment as investors remained prudent, observing the potential policy revisions. However the week witnessed few large scale transactions and retail participation, whilst institutional and high net worth interest was prominent in Bank Finance and Insurance sector. Commercial Leasing and Finance emerged as the week’s top turnover contributor adding c. 22.5% to the week’s total turnover mainly driven by crossings witnessed on Monday and Friday.

Commercial leasing and Finance that featured a crossing of 130mn shares at LKR5.0 on Monday emerged as the highest volume traded stock for the week with a cumulative 148.0mn shares being traded over the week. In addition, counters such as Commercial Bank of Ceylon, Hatton National Bank, John Keells Holding and Sampath Bank also witnessed crossings during the week. On the bak of these large trades daily average turnover for the week increased to c. LKR 656.2mn against LKR 449.5mn recorded during the previous week.

Meanwhile Finalys Colombo announced its first interim dividend of LKR1.0 per share for 2013, whilst Commercial Development announced an interim dividend of LKR2.0 per share for 2013. In addition CSE approved the listing of normal shares of Amana Bank on the Diri Savi board. Retail investors pursued counters such as Touchwood Investments, PC House Holding and PC House. However the week recorded a total share volume of 297.5mn against 131.1mn recorded in the previous week, which is a 126.9% WoW gain.

During the week IMF commended Sri Lanka for managing the inflation, economic growth and stable exchange rate however it continues to maintain the economic growth forecast for 2013E at 6.5% YoY which is below the Central Banks forecast of 7.7%YoY. However IMF warned that Sri Lanka could face high interest rates on USD denominated borrowings in the event US Federal Reserve restricts its stimulus.

The week saw foreign purchases amounting to LKR1,076.0mn whilst foreign sales amounted to LKR1,018.0mn. Market capitalisation stood at LKR 2,409.7bn and the YTD performance is 2.7%.

Conclusion: Investors Adopt a Cautious Approach During the Budget Week

Despite daily turnovers and volumes during the week depicting a mild recovery WoW, overall market sentiments remained dreary, possibly due to investors adopting a wait and see approach prior to the presentation of the 2014 budget and thereafter taking time to weigh the pros and cons of the 2014 budget.

With the unveiling of the “Budget 2014”, many new regulations and policies were introduced that would most likely bring about novel expectations and approaches on the corporate array. As opposed to the 2013 fiscal agenda, higher taxes via import duty, Cess, NBT, and VAT were introduced to increase the tax base and improve the government’s revenue. This is likely to impact sectors such as Banking and Finance, Beverage Food and Tobacco, Automobile, Land and Property, Chemical and Pharmaceuticals, Healthcare. Telecommunication
etc.

However, high Cess on imported food and related items and construction related products would immensely encourage local manufacturers involved in producing import substituting food manufacturing and manufacturers of tiles, cement, cables, aluminum, bath/sanitary ware etc. In addition, sectors such as Diversified, Plantations, Agriculture, Trading, Hotels and Travels etc. are likely to witness neutralized or mixed effects on the businesses.

Moreover, it is also worthy to keep track on foreign investor perception and reactions on the above fiscal proposals introduced as foreign participation so far has played a pivotal role in the local equity market, especially in sectors such as Banking and Finance, Diversified, Beverage, Food and Tobacco, Telecommunication etc. Thereby, the expectation of a possible slowdown in these sectors could result in reduction in exposure on the above segments in favour of sectors that are likely to outperform.

However, on the positive side, in order to encourage new listings, improve market liquidity and improve market activity levels, the government has extended the time frame to list by a further three years to obtain a 50% tax exemption for new listings with a minimum of 20% public shareholding and who pay a 28% corporate tax.
To read the entire report -http://research.srilankaequity.com/t855-22-11-2013-weekly-review-asia-wealth-management-co-ltd#973

It will take a couple of weeks for investors to get clarified on salient points of concessions, tax cuts & increases, merging of financial institutions etc..from authorized administrators. Meanwhile, on going rumors of price hikes striking to gas,fuel & other needy consumable items would be another dose for napping stock market.

The market closed on a mixed note with the ASPI losing 18.25 points (or 0.31%) and the S&P SL20 Index gaining 0.73% (or 23.20 points). The ASPI closed at 5792.72 points while the S&P SL20 Index closed at 3197.88 points.

Commercial Leasing & Finance led this week’s list of top contributors to market turnover with the stock accounting for 22.55% (or LKR 740.01mn) of total turnover value. Commercial Bank followed suit, contributing LKR 627.60mn (or 19.13%) while HNB contributed LKR 239.06mn (or 7.29%) to total market turnover. Total market turnover for the week amounted to LKR 3.28bn up 45.97% from last week’s total of LKR 2.25bn; daily average turnover value consequently increased to LKR 656.19mn relative to last week’s average of LKR 449.54mn. Market capitalization however, decreased over the week (by LKR 7.59bn or 0.31%) to close at LKR 2409.77bn compared to last week’s close of LKR 2417.36bn.

The Banking & Finance sector was the highest contributor to the week’s total turnover value, accounting for 64.62% (or LKR 2.12bn) of market turnover. Sector turnover was driven primarily by Commercial Leasing & Finance, Commercial Bank, HNB and Sampath Bank, which accounted for 83.32% of the sector’s total contribution. The second highest sectoral contribution stemmed from the Diversified sector, which contributed 11.22% (or LKR 368.20mn). The sector was helped by JKH which accounted for 51.72% of the sector’s total turnover value. The Beverage, Food & Tobacco sector was also amongst the top sectoral contributors to the market, accounting for 6.84% (or LKR 224.44mn) of the week’s total turnover value. The sector was helped by Distilleries which contributed 52.65% to sector turnover.

The Banking & Finance sector dominated the market in terms of share volume too, accounting for 59.78% (or 177.88mn shares) of total share volume, with a value of LKR 2.12bn. The Diversified sector followed suit as 34.22mn shares (or 11.50%), amounting to LKR 368.20mn were traded. The Land & Property sector meanwhile, contributed 5.51% to the week’s total turnover volume as 18.69mn shares changed hands. The sector’s volume accounted for LKR 81.89mn of total turnover value.

The highest price gainer for the week was E-Channelling with a W-o-W gain of 15.05% to close at LKR 10.70, compared to the last week’s close of LKR 9.30. PCH Holdings gained 13.33% W-o-W to close at LKR 1.70 while Singer Sri Lanka gained 12.00% W-o-W to close at LKR 99.90. Commercial Development and Abans were also amongst the week’s top price gainers with W-o-W gains of 11.20% and 10.91%, respectively.

Despite just 7 of its shares trading over the week, Ceylon Printers was the highest price loser, declining 22.86% W-o-W to close at LKR 1350.00 relative to LKR 1750.00 last week. Good Hope recorded a W-o-W price decline of 20.49% to close at LKR 1,032.00, while Metropolitan Resource Holdings closed at LKR 20.00, representing a 14.89% W-o-W decline.

Foreign investor participation rebounded to a net buying position with net inflows amounting to LKR 0.06bn, relative to net outflows of LKR 0.09bn last week (+171.50% W-o-W); daily average net inflows consequently amounted to LKR 0.01bn relative to average net outflows of LKR 0.02bn recorded last week. Total foreign purchases increased 75.15% to LKR 1.08bn relative to last week’s value of LKR 0.62bn, while total foreign sales amounted to LKR 1.02bn, relative to LKR 0.71bn last week (+44.30% W-o-W). In terms of volume meanwhile, HDFC and PCH Holdings led foreign purchases, while Dialog and Commercial Bank led foreign sales. In terms of value, HNB and JKH led foreign purchases while Commercial Bank and Sampath Bank led foreign sales.

Point of View

The Bourse lost further ground as subdued investor sentiment continued to weigh down indices. The benchmark ASPI hit a 7-week low of 5793.53 points on Wednesday with investors – particularly retailers – opting to remain on the sidelines. Volumes however, improved W-o-W driven by large transactions in Banking & Finance counters. CLC, COMB, HDFC and SAMP in particular, garnered significant investor interest, accounting for 46% of total market turnover.

Daily average turnover value consequently increased to LKR 0.66bn. Foreign purchases – driven by buying into HNB, JKH and PCH Holdings – increased significantly W-o-W, helping revert last week’s net selling position. Markets in the week ahead are likely to remain broadly unchanged.

Budget 2014 appears development-oriented in nature with a major focus on SMEs and social development. The Budget aims at achieving a GDP growth of 7.5% - 8% during 2014-2016, while simultaneously targeting a budget deficit of 5.2% of GDP in 2014 and 4.5% in 2015. Although significantly less than in the previous budget, this year too incentives have been provided for the development of capital markets. Proposals include a 50% tax holiday (for 3 years) for all Banking, Finance, Insurance and Manufacturing companies (which are liable to profit tax & 28%) which list on the CSE in 2014.

- See more at: http://www.dailynews.lk/business/banking-finance-sector-highest-contributor-week-s-total-turnover#sthash.bqNHmQNr.dpuf

http://www.sundayobserver.lk/2013/11/24/fin53.asp