Volatility continues for another week

HNB Stockbrokers' weekly market review

The market picked up on Monday, however failed to hold on to early gains as both indices slipped during the latter part of the week.

The ASPI (All Share Price Index) witnessed a Week on Week dip of 3.9 points or 0.18% to close at 2155.4 points, while the MPI (Milanka Price Index) saw a 17.2 point or 0.62% increase to close the week at 2788 points. The contradictory movement witnessed in the ASPI and the MPI this week was mainly due to the fall in price of Dialog shares, which are only represented in the ASPI.

Dialog share price dipped by 1.37% Week on Week (WoW) to close the week at Rs. 18 per share. The counter traded at a high of Rs. 18.75 and a low of Rs. 17.75 per share for the week. Around 7.4 million of Dialog shares were trading for the week, becoming the highest traded stock for the week, while the counter contributed Rs. 133.8 million towards weekly turnover.

In the spot light this week was Mercantile Leasing Ltd. (MLL) shares, where a 15% stake exchanged hands. JKH sold the stake, which amounted to 3.1 million shares at a price of Rs. 52 per share, with the trade contributing Rs. 162.7 million towards weekly turnover.

Apart from this, considerable quantities of NDB and JKH were seen trading for the week. Approximately 1.19 million of NDB shares traded for the week, of which the major portion of 1.14 million traded on Monday. The trade went through at a price of Rs. 230 per share resulting in NDB becoming the highest contributor towards weekly turnover with Rs. 272.7 million.

JKH witnessed a total of 1.67 million shares trading this week, with the major trade going through on Tuesday amounting to 1.18 million. The counter contributed Rs. 256 million towards weekly turnover with the share trading at a high of Rs. 158 per share and a low of Rs.152 per share.

JKH closed the week at Rs. 152.75 per share showing a 1.7% increase WoW. Renewed interest was seen in hotel sector counter Confifi, with its share price appreciating by 28.7% WoW. The counter traded at a high of Rs. 55 per share and a low of Rs. 42.25 per share to close the week at Rs. 51.50 per share. The major trade of 0.35 million shares went through on Wednesday at a price of Rs. 55 per share. The counter contributed Rs. 20.2 million towards weekly turnover.

SLT saw 1.67 million shares trading this week, contributing Rs. 32.5 million towards weekly turnover. The counter closed the week at Rs. 19.50 per share on Friday, trading at a high of Rs. 19.75 and a low of Rs. 19 per share for the week.

Interest also retained in Touchwood counters with 0.35 million of its shares trading for the week. The counter saw its share prices drop by 5.2% WoW to close the week at Rs. 99.75 per share while contributing Rs. 38.4 million towards weekly turnover. Total turnover for the week stood at Rs. 1.24 billion, with the week consisting of only 4 trading days. The average daily turnover stood at Rs. 309.1 million showing a moderate 14% improvement compared to last week.

Foreign investors remained net buyers for the week amounting to Rs. 197.9 million. Both foreign purchases and foreign sales showed notable increase, even though the week consisting of only 4 trading days.

Foreign purchases showed a 47.2% improvement compared to last week to stand at Rs. 436.7 million, while foreign sales showed a 63.8% growth to stand at Rs. 238.8 million for the week. Foreign participation improved from 16.4% posted during last week to 27.3% this week.

Among the highest traded stocks for the week on volume terms was, Dialog, MLL, JKH, SLT and Sierra.

Despite the widening trade deficit, the Balance of Payments (BOP) improved to US$345 million at the end of October 2005, as a results of the increase in private remittances, the benefit of the debt moratorium and the Central Bank's purchase of the net proceeds of foreign currency loans.

No rate hike

This week's monetary review is unlikely to raise the policy rates, as the Government still remains committed to the low interest rate scenario. The slow down in point-to-point inflation in November may also support this decision but in our opinion a rate hike is inevitable in the medium term given the possible pressure on the inflation during the next few months.

While welfare measures offered in the budget, tsunami rebuilding and supply constraints would lead to demand pull inflation, a long due revision to domestic fuel prices may result in cost-push inflation. Thus medium term inflationary outlook seem to be on the upside, pressurising the interest rates further.

The corporate earnings released at quarter ended September 30, 2005 showed continuation of the positive momentum for yet another term. Telecom, Banking, Construction and diversified sectors led the earnings growth while manufacturing and healthcare sectors also contributed towards the market earnings growth. Hotels and plantations were lacking growth due to tsunami impact and a rising wage bill respectively.

We expect the strong corporate earnings to continue in the coming quarters enabling the overall market earnings to grow at 29.5% (our universe) during 2005 calendar year. Despite mixed sentiments in the broader economy, we expect the corporate earnings to grow by 19.3% during 2006, adding more value to the market.

We remain optimistic on telecom, banking, construction and conglomerates, while selected counters in healthcare, manufacturing and plantation sectors also offer value. Hotel sector is also expected to wipe some of its losses in the next quarter even though an absolute recovery can only be projected in the latter part of 2006.

"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 create any liability of any kind of HNB Stockbrokers (Private) Limited or its associates.