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Profit taking was inevitable but the market stood strong as the ASPI fluctuated between 838.8 points to 864.6 points and closed the week at 856.96 points. This was an increase of 18.02 points or 2.15% compared with the last Week's close of 838.9 points. Milanka index was up 26.7 points to close at 1476.61 points.

It was interesting to see how the profit taking alternating with bargain hunting fluctuated the ASPI, as the investors reacted as soon as the prices became attractive.

On Monday the ASPI moved up by 2 points but declined by almost 14 points in 2 hours. However it turned around during the last hour to close the day 2.4 points down from the previous close. Among the heavily traded stocks were Merchant bank, NDB, Grain Elevators and Asian Hotels.

Grain Elevators in the lead...

On Tuesday, market picked up 11.1 points with the trading dominated by NDB and Grain Elevators.

NDB picked up by Rs 3 while Grain Elevators rose by Rs.4.50 at one time. Although the company recorded a net loss of Rs.94.5 million during the quarter ended June 30, 2002, they are expecting an improvement in their earnings for the 2nd half of the financial year ended March 31, 2003.

Share traded at Rs.13.50 on September 6, rose by Rs.10 or 74% within 3 weeks but declined 11.7% to close the week at Rs.20.75.

Ceylinco Stocks heavily traded

On Wednesday, the market moved another 12.4 points to touch 860 levels. Grain Elevators continued to trade heavily while some Ceylinco group stocks such as Ceylinco Seylan, Ceylinco Securities, Seylan Bank and Seylan Merchant were among the heavily traded. The daily turnover was significant at Rs.439.6 million.

Market started positively on Thursday with the ASPI climbing up to 864 points. However it dropped another 12 points but recovered soon to close the day with 0.4 points up.

Political news added to profit taking, changed the high sentiment in the market as it declined almost 8 points on Friday. But the buying pressure on Colombo Land, JKH and Asian Cotton Mills changed the complexion as the market closed the week at 855.96 points. The day's significant event was the trades in Asian Cotton Mills which was believed to be purchased by Dhammika Perera.

The share opened the day at Rs.8.50 bulldozed by 123.5% to Rs.19.

Colombo Land in a new rally

A total of 6.61 million shares or 5.1% (par value Rs.1) of Colombo land changed hands on Friday between Rs.2.25 - Rs.3 with the speculative buying driving the share further. Based on Colombo Land's group net assets per share of Rs.5.65, the stock is still trading at a discount to the book value.

As for the latest quarterly results Group shows an earnings per share of Rs.0.02, accordingly on an annualised EPS of Rs.0.08. at the current price of Rs.2.75 the stock is trading at a PER of 34 times.

HNB acquires Habib Bank's local operations

Hatton National Bank has reached an agreement with Pakistani-owned Habib Bank AG Zurich to purchase the latter's four branches in Colombo. It is learnt that the acquisition process is to commence immediately and the formal transfer to be effected by mid October 2002.

The proposed acquisition has received approval from the monetary authority and the Bank has formally sent a letter to the Colombo Stock Exchange.

Hatton National Bank is expecting to use internal funds for the acquisition. However the value of the transaction was not known.

Assets of four domestic units of Habib Bank, incorporated in Switzerland are estimated in excess of Rs.2 billion.

Habib Bank has a large portfolio of clients suitable for promoting Islamic banking and the acquisition should help Hatton National Bank's plans to expand into Islamic banking.

The HNB share traded between Rs.74 and Rs.77 but closed the week at Rs.76.25.

Coca Cola de-listed

Coca Cola Beverages Ltd is to de-list the company from the Colombo Stock Exchange. The decision to de-list was approved by the company's board of directors.

Meanwhile, Singapore's F&N Coca Cola Ltd, which holds a majority stake in the company, has offered to buy the remaining shares at Rs.34 a share. The Colombo Stock Exchange has determined the price.

Last year, F&N increased its holdings in Coca Cola Beverages to nearly 99% after which it decided to de-list the local unit.

Reduced defence budget for next year

The one-time biggest item of the Government spending Defence Budget is expected to come down from Rs. 51 billion to Rs. 36 billion for year 2003. Military budget has been regularly revised during the past since the spending on defence has always overshot the allocations due to the unpredictable nature of the war. In year 2001 the escalated military actions sent the Government finances disarray when defence expenditure guzzled up 4% of GDP. However defence expenditure for current year is expected to be around 2.5% of GDP.

This too due to spill over defence spending from last year. It's needless to say savings on military spending itself should release huge amounts of funds for the development of the economy which has been starved of capital expenditure in the recent past.

Sri Lanka's capital expenditure was 10% of GDP in 1991 but has deteriorated since then (In 2001 it was only 5.5% of GDP, however in the recent past major portion of capital expenditure has gone into purchase of military air crafts etc..) with the war eating into available resources.

Political Outlook

The political turmoil regarding the 19th amendment has reached the Supreme Court after 26 pending petitions being filed with the Supreme Court challenging the 19th Amendment.

Meanwhile a decision by the Supreme Court is expected within the next two weeks. Conversely, whatever the outcome it is most likely that the Government has to win 2/3 majority in the parliament to pass the 19th Amendment. Thus the next two weeks activity in the market to a great extent will be driven by the "political guessing game".

However the situation remains elusive with the Government claiming they have the 2/3 majority while the opposition vehemently denies the fact.

Point of view

Amidst mounting selling pressure due to profit taking, the market found it difficult to surpass the 860 barrier.

Though ASPI reached the 864 level on Thursday, the momentum was not strong enough to sustain the sentiment that existed.

Thus we feel that the market would move sideways for a while until profit taking selling pressure is exhausted. If investors are looking for strong blue chips that have been rallying in the recent past, we advice them not to jump into a bloated market.

They should move into stocks after the correction period. Those who looking to enter the market should focus on those stocks which has not picked up with the rest of the stocks and still trades below their potential value to minimise the risk factor.

On the long-term however, prospects couldn't be better. Investors are opened to a multitude of stable stocks, which are trading at considerably lower PE's when compared with the other markets in Asia and the future potential earnings for the FY 2003.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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