Healthy political development shoves market steadily
MARKET The main opposition party the UNP, signed a Memorandum of
Understanding (MOU) with the ruling SLFP on Monday, extending their
corporation on 6 key issues after weeks of negotiations.
This unprecedented alliance between the two parties saw the market
rising notably as investors welcomed the newly formed union as heralding
a new era in Sri Lankan politics.
The ASPI (All share Price Index) and the MPI (Milanka Price Index)
rose by a similar 1.3% on Monday, while on absolute terms, the ASPI
growth was 32 points while the MPI increased by 40.3 points.
However the initial hype seen on Monday did not retain as profit
taking combined with cautious sentiments on the peace talks which are
set to go through during the weekend saw listless movement during the
balance part of the week.
Week on Week (WoW) the ASPI was up by 31.6 points to close at 2503.2
points, while the MPI rose by 49.6 points closing on Friday at 3199.4
points. This week however was restricted to 4 trading days with Tuesday
being a holiday.
Blue chip JKH was the highest contributor towards daily turnover this
week, contributing Rs.677.3 million. The share price of JKH rose by 3.5%
compared to last week to close the week at Rs.149.25 per share.
During the week however, the counter managed to hit a high for the
week of Rs.150 per share. Sizable foreign selling was witnessed in the
counter, while a total of 4.5 million shares traded for the week.
Meanwhile JKH quarterly results were released on Thursday, with PAT
for the 2nd quarter showing a slight decline.
Touchwood managed to fulfill investor expectations this week, with
the company announcing a 2 for 1 bonus subject to shareholder approval.
The counter traded at high of Rs.178 per share before the announcement
Wednesday, however prices fell subsequently with the share price
touching a low of Rs.153 per share on Thursday.
The counter closed the week at Rs.159.25 per share down by 4.6% WoW.
Approximately 1.4 million touchwood shares traded this week, while the
counter became the second highest contributor towards revenue
contributing Rs.233.5 million.
Wireless telecom giant Dialog put out their quarterly results this
week, showing a significant 47% growth in profitability for the 3rd
However the share price showed little reaction to the growth in
profitability with the WoW movement in share price being a mere 2.3%.
The counter close the week at Rs.22.25 per share while within the week
the share managed to trade between a tight range of Rs.22.50 and
Rs.21.75 per share.
The counter managed to contribute Rs.97.4 million towards weekly
turnover, while 4.4 million shares traded for the week.
Meanwhile SLT saw reduced interest this week with the counter
managing to contribute a modest Rs.97.4 million compared to last week's
contribution of Rs.238.7 million.
The share price of the counter fell by 1.6% this week to close at
Rs.23.25 per share, while conversely, the share price rose by 6.8% last
SLT saw 3.8 million shares exchange hands this week, while trading at
a high of Rs.24 and a low of Rs.23 per share for the week Total turnover
this week was lower compared to last week, amounting to Rs.1.9 billion,
with activity being partly hampered by the week being limited to 4
However comparing the average daily turnover WoW which should exclude
the effect of the reduction in trading days, still turnover showed a
decline of 17.9% for the week.
Average daily turnover this week amounted to Rs.484.5 million.
Foreign investors were net sellers for the week amounting to Rs.295.7
million. The higher foreign sales came mainly from JKH, while standing
at Rs.634.6 million for the week.
Meanwhile foreign purchases for the week amounted to Rs.338.9
million. Foreign participation fell to 25.6% of total activity this
week, compared to 30.4% posted during last week. Vallibel, JKH, Dialog,
Nawaloka and SLT were among the highest traded stocks in terms of volume
for the week.
Market gained during the week amid the signing of the much-awaited
Memorandum of Understanding (MoU) between the Sri Lanka Freedom Party (SLFP)
and the United National Party (UNP) on Monday.
The activity levels also showed a significant improvement compared to
last week with increased participation from the retail investors. During
the week All Share Price Index (ASPI) increased by 1.28% compared to
last week's closing levels. Crucial round of talks in Geneva.
The government and LTTE delegations will meet in Geneva on October.
28-29 for their first high-level peace talks in eight months. We expect
both parties will use these talks as a platform to build the lost
confidence after the breakdown in talks in February this year.
Whilst we do not expect the peace talks to be a complete failure, we
also do not expect the two parties to agree on a permanent solution for
the conflict during the weekend talks.
However there is no doubt that the investor confidence would get a
boost if the two parties could agree on an agenda and a date to carry
forward the talks to the next level.
With the signing of the MOU between the SLFP and the UNP, both
parties have agreed to work together in arriving at a proposal to stop
the ongoing conflict in the north and east parts of the Country.
We believe that a proposal arrived by these two parties is likely to
be passed in parliament as they control 2/3 of the votes in parliament.
Therefore, we believe the government is now in a stronger position to
offer a reasonable proposal to the LTTE in terms of devolution of power,
which is a critical factor for successful negotiations.
We feel that the next week's market sentiment would largely depend on
the outcome of the Geneva talks. Thus we advise investors to keep a
close eye on the weekend's discussions between the LTTE and Government.
Meanwhile with more corporate results expected to be released in the
next few weeks' investors should collect stocks that are likely to come
up with strong financial results.
We expect banking sector stocks such as Commercial Bank and HNB to
have performed well during the first nine months this year.
Apart from the banking sector stocks, we expect companies such as SLT,
Distilleries and Hayleys also to record better results for the period
ended 30 September 2006 compared to the corresponding period last year.
All opinions views findings and conclusions included in this report
constitute our judgment of this date and are subject to change without
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