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| Monday, 15 November 2004 |
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HNB Stcokbrokers' weekly market review Market activity to remain low The market dipped considerably on Monday, where the ASPI dropped by 33.8 points and the MPI dipped by 60.5 points, compared to last week's closing levels. The dip was attributed to uncertainty, which loomed the market with rumours of tax increases in the upcoming budget on November 18. Market regained slightly on Tuesday and managed to stabilise during the week. The ASPI closed the week at 1475.2 points falling 19.8 points or 1.3% compared to the previous week, while the Milanka Price Index (MPI), fell by 48.3 points or 2.3% to close at 2079.6 points. Turnover for the week was a mere Rs. 791.8 million, with the market being open only for four trading days. The daily average turnover for the week stood at Rs. 197.95 million, which was in line with last week's average turnover level of Rs. 197.58 million. The major contribution to the total Turnover came on Friday with Asiri Medical Services counters debuting on the second board. Approximately 11.9 million of Asiri Medical Services counters traded on Friday at a high of Rs. 30 and a low of Rs. 22, closing the day at Rs. 26. The counter contributed Rs. 273.5 million to the week's turnover, while it accounted for approximately 76% of Friday's turnover. Foreign purchases for the week totalled Rs. 70.6 million, while foreign sales totalled Rs. 56.6 million, resulting in a net inflow of Rs. 14 million. Foreign participation for the week stood at 8.03% of total activity. Counters that were heavily traded during the week, include Asiri Medical Services, Royal Ceramics, SLT, Vanik Incorporated and Ceylinco Seylan. Policy Rates increased by 50 basis points in November As per the latest Monetary Policy Review in November the policy rates have been increased by 50 basis points the Repo and the Reverse Repo rates now stand at 7.50% and 9.00% respectively. In our last update in October we mentioned the Monetary board's intention to maintain the interest rates at the existing levels without an increase in order to encourage the economic growth. Nevertheless, the rising levels of inflation (CCPI annual average increase-October 6.1%) as well as the weakening rupee as a result of higher import bills on fuel have compelled the Monetary Board to increase the rates. The rising inflation does put pressure on Central bank to hike up the rates. If the inflation rises beyond the interest rates the increase in immediate consumption would drive inflation levels even higher, making things worse. Thus the levels of inflation need to be carefully monitored in the near term when deciding on the interest rates. The Monetary Board is of the view that the rise in money supply in the economy has the ability to add further pressure on cost of living with demand-fuelled inflation. During September the broad money supply has risen by 18.1% as a result of a higher than anticipated growth in private and government credit. Thus the policy rates have been increased in November with from November 10. Further this tightening of money supply may slow down the rupee depreciation to a certain extent. December may see further pressure on inflation Furthermore, December being a festive season with higher consumption we expect the inflation to continue its upward trend towards year-end. Our year-end inflation target stands at 6.8% (CCPI annual average increase). With the global oil prices not expected to take a breather at least until the IQ 2005 we believe that the policy rates may need a further review during early 2005. Therefore we see the current increase in policy rates as a timely move to accommodate the inevitable macro developments. Activity to remain low amid upcoming budget proposals We expect the market activity to remain low, as the investors would prefer to observe the outcome of the budget proposals before committing any fresh funds. Furthermore, investors may look at the possibility of returning to cash in order to prepare for the up coming IPOs. Therefore we expect the indices to remain flat, in thin trading during the week. Seylan Bank: results for 9 months FY2004 Earnings Seylan Bank reported a 61% dip in net profits during the first 9 months of FY2004, as opposed to the corresponding period of FY2003. The drop in profits was largely due to a 34% decline in other income, which could be attributed to a 49% slump in profits from treasury operations. Seylan recorded a 13% decline in total revenue (net interest income + other income) to Rs. 4.4 billion during the period under review as opposed to Rs. 5.1 billion recorded during the same period of FY2003. The loan book grew by 11.5% to Rs. 60.3 billion compared to December 2003. The views based herein are expressed with no malafide intension to any party whatsoever based on already published data and from the information obtained by the research team. No matter published as above creates any liability of any kind whatsoever on HNB Stock Brokers Pvt Ltd or its associates. The views cannot be reproduced in any form without the explicit (written or otherwise and photocopied) permission from HNB Stock Brokers (Pvt) Ltd. |
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