Bartleetís weekly market commentary

Market outlook

The week started on a positive note with both indices gaining ground into positive territory with the market anticipating the ASPI to break the all time high record of 1378 points during the course of the week. Mondayís levels were 1354.80 points for the ASPI & 2491.90 points for the MPI. The market witnessed a significant turnover to the tune of Rs. 767.6 Mn while a net foreign inflow of Rs. 50.2 Mn was recorded in the bourse. Amongst the top trades of the day were two local to foreign crossings of JKH to the tune of 150,000 & 72,000 shares at Rs. 139.50 & Rs. 130.00 respectively. Asiri Hospital & Abans Electricals announced dividends of 10% (Final) & 20% (1st & Final) respectively. Tuesday saw the ASPI dipping slightly to close at 1353.10 points due to some marked profit taking mainly on hotel sector shares while the more sensitive MPI increased up to 2495.60 points.

The market posted an impressive turnover of Rs. 801.2 Mn boosted by foreign purchases on LMF, DFCC & SLT. A local to local crossing of SLT to the tune of 500,000 shares @ Rs. 25 was a significant transaction. On the third day of the week, both indices gained further ground into positive territory with the ASPI closing at 1353.20 points & the MPI closing at 2495.60 points. Sampath bank announced an interim dividend of 15% after a long period of silence while CTC announced a 12% interim dividend. While the turnover level was Rs.578.7 Mn, the market witnessed some profit taking in the plantation & hotel sectors shares. Thursday being a non market day, Friday saw both indices gaining ground with a 21 point gain in the MPI boosted by enthusiastic local buying of DFCC which sent the share price sky rocketing to close at Rs. 385 from the closing price of Rs. 325 on Wednesday.

The market activities were dominated during the week by 11,178,500 shares of SLT traded between Rs. 23/75 to Rs 25/25, 6,099850 shares of LMF which traded between Rs. 23/50 to Rs. 33/-, 2,426,827 shares of JKH (trading between Rs. 135 to Rs. 140), 4,560,900 shares of Asian Hotels trading between Rs. 29/50 to 33/25 (which was higher than the mandatory offer made by JKH for Rs. 30/=) & 6,747,200 shares of Seylan Bank (non voting) which traded at Rs. 27/75 to 29/50. Overall, the ASPI gained 30.6 points while the MPI gained 78.4 points during the week.

Significant buying interest was seen on SLT, LMF & shares in the property development sector during the week with investors speculating impressive returns in the construction industry spurred by the increase in development activities in the North & East. An interesting turn of events was witnessed in the banking sector whereby selling pressure on blue chip banking companies, namely NDB & Commercial Bank was ably retaliated by strong purchasing by local funds/institutions which saw the potential of the banking shares to further move up as the current sector PE of 9.9x is 30% undervalued to the sector PE of 14.3x.

The hotel sector, after heavy profit taking, stabilized at a sector PE of 77.7x which still seems to be sentiment driven due to expectations of a massive boost in sector returns during the financial year 2003-2004. The market saw a influx of foreign interest mainly in DFCC & SLT which resulted in the first two days of trading posting net foreign inflows of Rs. 50.2 Mn & Rs. 59.8 Mn respectively. Even though Wednesday (with a net foreign outflow of Rs. 52.9 Mn) & Friday. (With a net foreign outflow of 123 Mn) saw heightened foreign selling in the market, it is evident that foreign interest can be expected to mount up on mainly the blue chip companies especially in the banking sector, in future.

The further reduction of TB rates is fuelling the process of diversion of excess liquidity towards the equity markets, which would greatly aid the attractiveness of the Colombo bourse to local investors while the control & retardation of the appreciation of the rupee by the central bank would make local stock market a healthy investing ground for foreign investors.

With the expectations of better quarterly results for the period ended 30th September, fundamentally strong stocks of the Hotels & Travel, Banking & Finance, Food & Beverage & Manufacturing sectors are expected to provide significant capital gains to bullish investors. The early refund of excess funds from the llx oversubscribed Initial Public offering of Hemas Holdings is expected to be directed by investors to other alternative investments, thus increasing market liquidity further.