Short-term improvement in equity market conditions

The All Share Price Index increased 2.4% this week to close at 793. The sensitive Milanka Index also gained 1.9% to close at 1,351. Market activity gained momentum, with average daily turnover at Rs. 125 million. Foreigners were active participants in the market with foreign purchases amounting to Rs. 127 million and foreign sales to Rs. 58 million.

The week started on a negative note with the ASPI slumping 7 points to 767. NDB went ex-dividend and saw its shares dip Rs. 7 to Rs. 81 this staretd the correction on Monday. Among the decliners were top blue chips Hayleys that dropped Rs. 5 to Rs. 130, Commercial Bank that closed Rs. 3 down at Rs. 197 and JKH, which lost Rs. 2 to close at Rs. 73. Janashakthi Insurance Group purchased a 3.2% stake of Dankotuwa Porcelain for Rs. 13 million.

The ASPI shot up 12 points to 780, on high volumes on Tuesday. Turnover for the day, was Rs. 165 million. There was considerable foreign activity, with foreign purchases amounting to Rs. 77 million and foreign sales to Rs. 9 million. A foreign fund bought 4.5 million shares of Asia Capital at Rs. 10 each from the company’s director Udeshi when the last traded price of ACAP was Rs. 8.00. Also, in a crossing deal a block of 200,000 shares of JKH traded at Rs. 75 each.

The market index ended 8 points higher at 788 on Wednesday. Turnover was high at Rs. 180 million. Top contributors to the day’s turnover included JKH, HNB and SLT. 620,100 shares of SLT traded between a high of Rs. 14 and a low of Rs. 13.50 before it closed at Rs. 13.75. A block of 168,000 shares of DFCC was traded in a crossing deal at Rs. 155 cash between two foreign investors. In another crossover, 1,000,100 shares of Asia Capital were traded at Rs. 10, between the same parties to the deal on Tuesday. Janashakthi resumed its buying spree, purchasing a further 7% stake in Dankotuwa Porcelain, thereby increasing its stake to 10% of the company. The insurance giant also picked up 200,000 shares.

The ASPI gained 6 points on Thursday to close at 793. Market activity was once again intense with turnover reaching Rs. 122 million. JKH accounted for one third of turnover. Janashakthi purchased 140,000 shares of the conglomerate giant. Our largest listed corporate SLT edged towards to its issue price to close at Rs. 14.

The market ended virtually flat on Friday at 793 before closing for the New Year. Turnover for the fourth consecutive day, was high at Rs. 127 million, with Hayleys accounting for 42% of it. The Captain family snapped up a large quantity of Hayleys shares. Foreign investors sold two blocks of 10,000 and 26,000 shares of Tokyo Cement At Rs. 87.

Dankotuwa Porcelain

Janashakthi Insurance Group purchased 10% of the company this week as a strategic investment. Dankotuwa experienced an impressive turnaround in 2002, recording a profit of Rs. 37 million, in contrast to a loss of 2 million in 2001.

Foreign Markets

The markets took little heed of the jubilant scenes on the streets of Baghdad, discounting the Dow Jones Industrial Average by 56 points during the last four trading sessions before it closed on Thursday a 8,221. Profit warnings and fears of an economic downturn in the US were rife this week, weighing down the market.

Tea

Despite the war raging on in the Middle East, the tea auctions experienced an upturn this week, with increase demand from countries like Syria and Libya. There was an improvement in almost all lines compared to last week and over 90% of teas offered were sold. The fact that there will be no auctions next week due to the holidays, may have contributed to the increased demand. The tea industry along with the commercial banks are setting up a Tea Market Stabilization Fund to alleviate the effects of the depressed market on the tea industry. The fund will mop up all remaining unsold tea from the weekly auctions.

Oil Prices

With news of the ‘liberation’ of Baghdad and the capture of the oil rich Kirkuk territory by the Kurds, oil pricesin the US fell 5% to $ 27.46 per barrel.

Market Forecast

Rates on Treasury Bills declined for the second consecutive week, with the 12-month Treasury Bill rate at 9.00%. The declining interest rate regime, along with the easing of tensions in the Middle East has improved conditions for the equity market in the short term. With the New Year holidays and only two trading sessions next week, we expect the market to be subdued. Following the holidays, however, the market may continue to glide into positive territory.

The recovery of the world economy is showing signs of faltering. In its latest forecasts, the IMF shaved off a few percentage points from its growth forecasts for 2003. The forecasts were prepared before there were signs that Saddam’s hold on Iraq was over and hence may prove too pessimistic. However the IMF points out that an end to the war does not mean an end to the uncertainty, which has dogged the global economy. The underlying economic problems remain unclear, because they are mixed with the complications of the Middle Eastern conflict. The IMF’s forecast for global economic growth is 3.2%, down 0.5% from its forecast six months ago. It now expects a growth of only 2.2% in the US. The prospects for the other industrial countries are even bleaker Europe and Japan are expected to row at 1.1% and 0.8% respectively. Weakness in the world’s largest economies may affect Sri Lankan exports. Not to mention the fact, that export demand for tea will only fully recover once the Middle East returns to a state of normalcy. Tourism also has been dealt yet another blow with the outbreak of the SARS virus.
SC Securities