Indices on roller coaster ride

THE market was seen reacting negatively to the outcome of the presidential election, with indices falling substantially on Friday. While at the onset the market fell heavily, it managed to however recover to some extent during the day.

The ASPI (All Share Price Index) closed the week down by 143.1 points or 5.79% to close the week at 2328.9 points, while the MPI (Milanka Price Index) closed the week at 3022.8 points, down sizably by 243.1 points or 7.44%.

On Wednesday, the investors became buoyant with both indices setting new highs. The ASPI peaked at 2551.4 points, while the MPI rose to a high of 3374.0 points.

Banking sector stock, Sampath bank saw a 5% stake, exchange hands on Thursday. The stake, amounting to 4 million was reportedly sold by a foreign investor and was acquired by Dammika Perera controlled Vallibel Leisure.

The sale went through at a price of Rs. 105 per share. Sampath Bank saw 4.1 million shares trade for the week, closing the week at Rs. 103.75 per share.

The counter was the highest contributor towards weekly turnover contributing Rs. 435.2 million.

Asia Capital saw an approximately 9 million stake of its shares trade on Monday. A Malaysian party reportedly bought the stake, with the trade going through at a price of Rs. 17.50 per share. The counter closed the week unchanged from last week at Rs. 16.25 per share, contributing Rs. 188.3 million towards weekly turnover.

Dialog saw 15.9 million of its shares trade, becoming the highest traded stock for the week. The counter saw its share price fall by 5.1% Week on Week (WoW), and closed the week at Rs. 18.50 per share, after reaching a peak of Rs.21.25 on Wednesday.

However Dialog managed to contribute Rs. 314.1 million towards weekly turnover, being the second largest contributor for the week.

Apart from Dialog shares, sizable reductions in share prices of many blue chips were witnessed, including that of JKH and Commercial Bank. JKH saw its share price fall by 7.2% WoW, closing the week at Rs. 157.25 per share.

The counter saw 1.68 million shares trading, contributing Rs. 282 million towards weekly turnover. Commercial bank saw its share price dampen by 6.6% WoW to close at Rs. 158.50 per share.

The counter saw a notable 1.3 million shares trading for the week contributing Rs. 222.5 million towards turnover.

Distilleries saw 3.3 million of its shares trade this week, with the counter contributing Rs. 168.1 million towards weekly turnover. The counter saw its share price fall sizably by 8.4% WoW to close the week at Rs. 46.25 per share.

LIOC saw its share prices slump this week with its price falling by 5.1% WoW to close the week at Rs. 41.75 per share. The counter saw 4.9 million shares trading during the week, contributing 220.9 million towards weekly turnover.

The total turnover for the week stood at Rs. 3.4 billion this week, even with week consisting of 4 working days. The average daily turnover was high at Rs. 842.6 million, compared to a daily turnover of Rs. 818 million posted during the last week.

Foreign investors remained net sellers for the week, amounting to Rs. 659.4 million. Foreign purchases for the week stood at Rs. 633.3 million. Foreign sales were comparatively high due to the above stated trade of Sampath Bank shares, amounting to Rs. 1.3 billion.

Foreign participation for the week amounted to 28.3% of total activity far less than the record 44.9% posted during the last week. Dialog, Asia Capital, Vanik Incorporated, SLT and LIOC were among the highest traded stocks for the week.

Economic issues challenging but manageable

The current economic issues such as high inflation, a sliding rupee and a widening fiscal deficit could be managed to a larger extent given the confidence on the continuity of the peace process.

In the medium term an upward revision in domestic fuel prices, a further rate hike seems inevitable but the economy could absorb a short-term hitch, given the developments projects backed by foreign aid flow into the country.

However most of these foreign funds are pegged to the success of the peace process and this reiterate the peace premise.

Development projects should get an early start

The longer-term projects highlighted in Budget 2006 should get started immediately with the implementation of the tsunami reconstruction plan getting high priority.

While these projects help development, it also facilitates an already pressurised currency, which in our opinion needs stay at the modest depreciation of no more than 2%-3% next year, if the inflation to return to single digits.

With a US500 million worth debt relief form G7 nations expiring in December 2005, (unlikely to be extended for another year) the fresh pressure on the balance of payment (BOP) would add further pressure on the rupee.

Thus we insist the need for continuous aid flow to the country if the rupee to remain at acceptable levels.

Investors await fresh signals

Given the above concerns, the investor community would be keenly observing the newly elected President's stance on peace and economic policies.

Even though his election manifesto carries some direction on these areas, we believe that more concrete steps and actions are necessary to build further confidence in the market place.

While the market is expected to run through yet another uncertain passage in the coming weeks, we expect the indices to remain highly volatile in a wide range.

Overall trend may stay in the negative side for at least another few days, though the volatility would help investors to take trading positions in the short term.

"This information has been compiled from sources that we believe to be reliable but we do not hold ourselves responsible for its completeness or accuracy. No matter published herein creates any liability of any kind of HNB Stockbrokers (Private) Limited or its associates.