Dialog steals the limelight

The market, started off on a positive note this week, saw Dialog Telecom's entrance carrying the bourse to new highs on Thursday. The ASPI (All Share Price Index) saw a substantial 79.7 point increase on Thursday, breaking the psychological 2000 point barrier to close at an all time high of 2026.3 points. Friday saw the ASPI rising further closing the week at 2047.2 points, up by 111.1 points or 5.74% compared to last week's closing.

The MPI (Milanka Price Index) failed to show a similar growth, due to Dialog shares not being included in the MPI. Nevertheless the MPI rose by 8.5 points, or 0.31%, compared to last week to close the week at a new high of 2734.4 points.

Dialog shares opened trading on Thursday after a very successful IPO, saw the offer being oversubscribed by around 6.5 times. Approximately 133 million of Dialog shares traded in the market on Thursday, at a high of Rs. 15.25 and a low of Rs. 14 per share, closing the day at Rs. 15 per share.

The counter contributed a thumping Rs. 1.97 billion towards the day's turnover, which constituted 88% of total turnover for Thursday.

Of total purchases 86.6% was from foreign buyers. Dialog also became the first company in the Colombo bourse to post a $1.1 billion or Rs. 111 billion, market capitalisation.

Friday saw a similar trend continuing with dialog contributing Rs. 324.3 million to Friday's turnover, which amounted to 56.2% of the total day's turnover. Foreign buying stood at around 84% of total purchases.

A relatively subdued 21.07 million Dialog shares traded on Friday, closing the week at Rs. 15.50 per share. Apart from Dialog, which took center stage this week, other listed Telecom company, SLT also came under the spot light this week. A court ruling against the company saw the share price falling to Rs. 23.25 per share on Wednesday from a previous day's high of Rs. 24.75 per share. Approximately 11.25 million of SLT shares traded for the week, closing the week at Rs. 23 per share.The reduction in both indices on Wednesday was mainly due to the slide in SLT share prices. SLT managed to contribute Rs. 265.6 million towards weekly turnover, becoming the second highest contributor after Dialog. Among other key trades for the week was, Asiri Hospitals, which saw a substantial 2.44 million, shares trade on Thursday. The share traded at a high of Rs. 50 and a low of Rs. 41 per share to close on Thursday at Rs. 47 per share showing a 17.5% increase compared to Wednesday's close.

Week on Week (WoW), the counter showed a 15% increase to close on Friday at Rs. 46 per share. Asiri contributed a notable Rs. 127.2 million towards turnover for the week. Total turnover for the week stood at a substantial high of Rs. 3.58 billion, resulting in an average daily turnover of Rs. 716.1 million. Comparing average daily turnover levels WoW the turnover shows a thumping 358.1% increase. Out of the total weekly turnover, 64% was contributed from Dialog share trades.

Kandy Hotels Ltd. saw its price appreciate substantially by 41.9% WoW to close the on Friday at Rs. 138 per share, while 336500 shares traded for the week. The major trade of 320,500 shares occurred on Monday, which saw the counter trade at a high of Rs. 283 per share and a low of Rs. 109 per share.

The buyer of the quantity was reportedly a foreign party.

Foreign investors were net buyers amounting to Rs. 1.66 billion. Foreign purchases stood at a high of Rs. 2.28 billion, while comparatively foreign sales stood at a low of Rs. 586.4 million. From the foreign purchases of Rs. 2.28 billion approximately 89% came from Dialog share trades. Foreign participation saw a notable increase to stand at 39.5% compared to 16% posted last week. Dialog, SLT, Reefcomber, Asiri Medical Services and Vanik Incorporated were amongst the highest traded stocks for the week.

Indices to fluctuate in modest trading

Dialog Telekom made an orthodox entry into the market with the counter trading in the range of Rs. 14.00 - Rs. 15.50, being in line with our expectations. The listing helped CSE's market capitalisation to rise by Rs. 115 billion or 23% to Rs. 619 billion (US$6.19 billion) by Friday. Meanwhile Rs. 1 increase in Dialog pushed the ASPI by nearly 24 points, thus this weeks fast appreciation in the index was largely due to the 29% (or Rs. 3.50) surge in Dialog counters.

Macro instability still continues

LTTE, last week announced that they were not willing to renegotiate the Ceasefire Agreement (CFA) after the government called for talks to review and restructure the February 2002 CFA.

The tense situation in the Eastern province seems to ease off a little even though few more incidents continued. While we do not expect the country to return to war, it is our view that both government and LTTE should take urgent steps to build lost confidence.

Positive trade data, the rupee falls

Trade data released for May 2005, showed the exports rising by 9.6% in May 2005 to US$449 million from US$409 million recorded in May 2004. The export earnings in January - May 2005 also grew by 11.4% to US$2,392 million. The imports increased by 17.5% to US$684 million in May 2005 from US$582 million in May 2004.

This led to a growth of 8.6% in imports in January - May 2005 amounting to US$3,303 million. The resulting trade deficit in May 2005 amounted to US$236 million. In the first five months, the deficit increased marginally by US$17 million to US$911 million. Despite the widening of the trade deficit, the overall balance of payments recorded a surplus of US$ 174 million during the first six months of the year, reflecting the benefits of private remittances which grew by 26% in the first five months, official inflows to the government and the benefits from the debt relief. Consequently, official international reserves increased from USS2,196 million in December 2004 to US$ 2,372 million in June 2005.

Despite the positive trade data, the rupee depreciated nearly 0.15% during the week amid the macro uncertainty and delay in the implementation of the P-TOMs agreement.

Inflation still on the rise

Overall price levels increased in July over June, deviating from the seasonal decrease usually observed for this month. The impact of fuel price increases was one casual factor for this increase. High point-to-point increases resulted in the annual average increases in inflation rising to 12.7% as per the Colombo Consumer Price Index (CCPI) for July 2005.The Fuel and light and Transport categories were the major contributors to the monthly increase of the CCPI, following the upward revision of fuel prices and bus fares in June and LP gas price in July.

The Food category, which has the highest weight, marginally declined during the month. We expect the inflation to marginally ease off towards the latter part of the year given the fuel prices are not increased dramatically.

Indices to remain volatile

After a week of positive momentum, the indices are likely to turn volatile with some investors looking at possible profit taking. The movement in Dialog counter would create a sizeable impact towards the movements in the ASPI but the Milanka Index would not be affected by the Dialog's entrance as it is yet to be entered in the Milanka.

We expect the activity levels to remain modest, with some improvement compared to the previous few weeks but both indices are likely to fluctuate in a wide range amid profit taking and the macro uncertainty.

"This information has been compiled from sources that we believe to be reliable but we do nothold ourselves responsible for its completeness or accuracy. No matter published herein create any liability of any kind of HNB Stockbrokers (Private) Limited or its associates. All opinions views findings and conclusions included in this report constitute our judgment of this date and are subject to change without notice.