Foreign sales remain higher compared to purchases

MARKET REPORT: While the market started the week off on a favourable note, with both indices picking up moderately, during the week however indices dampened as investors booked in profits.

Indices slid on both Tuesday and Friday, while holding ground showing little movement on Wednesday. Comparing Week on Week (WoW) however both indices moved higher this week.

The ASPI (All Share Price Index) picked up by a noteworthy 26.7 points, to close at 2937.6 points, while the MPI (Milanka Price Index) rose by 33.6 points closing the week at 4088.7 points.

Market heavy weight counters headed the list in terms of contributions towards turnover this week, with JKH managing to retain its slot as the highest contributor towards weekly turnover for 6 consecutive weeks.

Contribution from JKH towards total turnover amounted to Rs. 1.5 billion, with 7.1 million of its shares trading this week. During the week the JKH share price peaked at Rs. 223 per share while touching a low of Rs. 198 per share.

The counter traded ex-rights on Tuesday leading to the share prices falling by 8.2% during Tuesday's trading. JKH closed the week at Rs. 205.25 per share on Friday.

Taking the spot light this week however was banking sector counters as an announcement of a possible merger between Commercial Bank and NDB set the market a buzz with banking counters Commercial Bank, DFCC and NDB witnessing an upsurge of interest.

News of a probable merger between Commercial bank which is strong in its commercial banking and NDB which has its competencies mainly in development banking, left the market jolted this week amid the unexpected announcement coming through on Wednesday.

Commercial Bank voting share prices picked up by 15.3% this week, while the non voting share price appreciated by 31.6% becoming the top gainer for this week.

The voting counter traded between a range of Rs. 250 and Rs. 201 per share, while the non-voting counter traded within a range of Rs. 144 and Rs. 95.50 per share for the week.

Both counters managed to contribute a total of Rs. 448.8 million towards weekly turnover this week.

Meanwhile the other party to the merger NDB, saw its share price move up by 6.7% compared to last week. The counter closed the week at Rs. 215.25 per share, while trading at a high of Rs. 225 per share for the week.

However volumes traded were much less than what was witnessed in Commercial bank, standing at 283,400 shares.

DFCC shares were also riding the merger bandwagon this week, due to its holding in Commercial bank. DFCC is the largest shareholder of Commercial bank holding 29% of its shares.

DFCC saw 945,700 of its shares trading this week, with the share price appreciating by 8% this week.

The counter reached a high of Rs. 208 per share while closing the week at Rs. 205.25 per share.

DFCC contributed a sizable Rs. 189.7 million towards the week's turnover.

Looking away from the hype on banking sector counters, Telecom stock SLT managed to retain investor interest for yet another week. SLT was the second highest contributor towards weekly turnover this week contributing Rs. 418.3 million towards total turnover.

Approximately 12.7 million SLT shares traded this week, though share prices showed little movement closing at Rs. 33 per share. For the week the counter traded within a thin range of Rs. 33.75 and Rs. 32 per share.

Total weekly turnover stood at Rs. 4.6 billion this week, remaining quite similar to what was posted last week.

However it should be noted that last week's trading was limited to 4 days, thus this week's daily turnover has shown a dampening compared to last week.

This can more clearly be observed by looking at the average daily turnover figures, which stand at Rs. 930.2 million for this week, compared to Rs. 1.16 billion posted last week.

Foreign participation picked up slightly to 24.2% of total activity this week, compared 20% recorded during last week.

Foreign sales remained higher this week at Rs. 1.3 billion, when compared to foreign purchases, which totaled Rs. 932.2 million this week. The resultant net foreign out flow amounted to Rs. 384.7 million for the week.

Heavily traded stocks this week, in terms of volume were; SLT, Ceylon Glass, JKH, Sierra and RCL.

Both indices managed to maintain the positive trend despite profit taking by the investors during the week. Activity levels dipped slightly compared to last week but remained healthy above Rs. 930 million on a daily average basis.

During the week market gained by 26.7 points compared to previous week's closing levels. Consolidation is the way forward in the banking sector On Wednesday Commercial Bank (COMB) and NDB announced their plans to merge with each other if monetary board and shareholders of the two banks approves the proposal.

Considering the size of the two banks we believe a considerable amount of time and effort will be needed for the success of the proposed merger.

Looking at the bigger picture, we view the proposal for consolidation positively as possible synergies and scale advantages would provide the merged entity the strength to face fierce competition from foreign banks and the capability to move beyond the shores of Sri Lanka to be a force in the South Asian region, as mentioned by us in our banking sector report titled 'Banks Re-emerge' that was published in September 2005.

We expect the volatility to continue in the marketplace, as investors are likely continue profit taking. Therefore we advice investors to eye on possible trading opportunities in the marketplace during the coming week backed by the expected volatility in indices.

Furthermore, we expect the activity levels to remain healthy as experienced during the past couple of weeks due to high retail participation.

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