Declining market interest rates shift investor interest towards the Bourse

The Colombo stock market ended the week with a WoW gain together with healthy market turnover in a comparatively short week which comprised only three trading days. The ASI gained 47.9 points WoW to close at 6,131.1 points (+0.8%), whilst the S&P SL20 Index gained 23.4 points WoW to close at 3,407.9 points (+0.7%). Indices benefitted mainly on the back of gains made by John Keells Holdings (+2.6% WoW), Ceylon Tobacco Company (+1.0% WoW), Hatton National Bank (+2.5% WoW), Lion Brewery Ceylon ( +3.3% WoW) and Lanka IOC (+4.9% WoW).

The bourse which witnessed steady upward momentum during Monday and Thursday witnessed a 36 point dip on Friday possibly due to profit taking the weekly market volume and turnover stood above the 12-month average. Whilst foreign investors continued to be in a buying sentiment during the week. Further the daily average turnover for the week increased to LKR 1,630.5mn against LKR 996.9mn recorded during the previous week. Meanwhile the week recorded a total share volume of 274.6mn against 216.2mn recorded in the previous week, which is a 27% WoW gain.
The gradual decline in market interest rates together with improvement shown in several macro economic variables is likely to have lured local
and foreign investors towards CSE. Meanwhile the T-bill yields fell drastically during the weekly auction held on Monday with yield on 182-days and 364-days reaching the lowest since October 2010.
John Keells Holdings which witnessed few crossings during the week emerged as the week’s top turnover contributor adding c. 24% to the week’s total turnover. Pan Asia Power emerged as the highest volume traded stock for the week with a cumulative 48.9mn shares being traded.

Counters such as Hatton National Bank, Commercial Bank of Ceylon, Chevron Lubricants, Kelani Tyres etc also witnessed crossings during the week.

The week saw foreign purchases amounting to LKR 2,223.8mn whilst foreign sales amounted to LKR1,682.7mn. Market
capitalisation stood at LKR 2,550.7bn and the YTD performance is 3.7%.

Conclusion: Active foreign and local intuitional participation energizes the market

Despite a three day trading week, overall market registered a WoW gain close to 1.0%, whilst activity levels also postured steady signs with average daily turnovers and volumes gaining 64.0% and 112.0% WoW respectively.

Meanwhile, foreign participation was quite significant whilst being a driving factor where the week reported a 2.8% WoW rise in purchases whilst foreign sales dropped 13.2% WoW brining in a net inflow of over LKR 541mn for the week. This demonstrates that foreigners are continuing to place their confidence in the local economy as witnessed during the past 2 years, which also strengthens the local investor sentiments.

However, on the flipside the World Bank adopted a cautious note on the country despite the country’s GDP growth (7.4%- 2014) projected to be above the South Asian region (5.7%-2014) due to the high level of external debt, current account deficit and openness to capital outflows which makes it vulnerable towards possible tightening of international financial conditions. Nevertheless, despite such a situation the country experienced a net foreign inflow to the market of c.LKR 23.0bn in 2013. Therefore, with the IMF predicting global growth to pick up further during 2014 and emphasizing more on the US recovery the Colombo bourse is poised for better returns.
To read the entire Report: http://research.srilankaequity.com/t879-17-01-2014-weekly-review-asia-wealth-management-co-ltd

http://www.sundayobserver.lk/2014/01/19/fin52.asp

Kumar wrote:...The gradual decline in market interest rates together with improvement shown in several macro economic variables is likely to have lured local and foreign investors towards CSE.

The interest rate on a 12-month Bank FD has declined to 8%, compared to 13.5% a year ago.
On an FD of Rs 1 million, my monthly interest income is < Rs 7,000 now... whereas it was Rs 11,250 a year ago.

In these uncertain times, perhaps we should look more closely at shares with high dividend yield and consistent payout. What's your top pick?

There is a risk of losing capital and earn nothing in the stock market whereas your capital is protected and earn an interest in FDs.

You can earn around 26% on FDs with in 2 years (Yearly yield around 13% in good finance companies). (Excluding CIFL, TFC, SFS)
On top of that you have peace of mind.
If you are investing in stock market you must wait for a minimum of 3 years to get a decent return. Investing in FDs in a finance company would have yielded you 40% in 3 years.
For an example ASI moved from 5900 to 6200 points but did you notice any movement in the following shares.

1) DOCK 2) LFIN 3) VFIN 4) CDB 5) REGN 6) RCL 7) CFIN ALLI
and many more. All are fundamentally strong shares.

What I want to tell is that only put your surplus money in the market where you can wait a minimum of 3 years. Withdrawing your FD and dumping in the market seems to be too risky for me.

This is my personal opinion and I may be wrong.

dineshfernando wrote:There is a risk of losing capital and earn nothing in the stock market whereas your capital is protected and earn an interest in FDs...

What I want to tell is that only put your surplus money in the market where you can wait a minimum of 3 years. Withdrawing your FD and dumping in the market seems to be too risky for me.

This is my personal opinion and I may be wrong.

I share your opinion, but am trying to improve my returns in a less risky way. There could be companies that are performing steadily, and paying a decent dividend.

Just as an example, look at CTLD (Net Assets per share = Rs 54.92)...
If someone had bought the share at Rs 27.10 one year ago, he would already have received dividends of Rs 3.10 + capital appreciation of Rs 3.60: Total return of Rs 6.70 on an investment of Rs 27.10. Even after deducting taxes and broker fees, that's a return of 21%.

I am looking for 'safe' opportunities like these.