Investors focus on corporate earnings ignoring political developments

SHARE MARKET: The market started off on a buoyant mood, however activity dampened during the latter part amid profit taking this week. Investors ignored the political developments and instead seemed focused on corporate earnings.

Positive corporate earnings increased the interest in several counters this week, while some counters remained to be driven on speculation.

The highlight for the week was the market crossing the 3000 point mark for the first time on Tuesday, closing at 3016.4 points.

Comparing Week on Week (WoW) both the indices closed higher this week riding on the gains in the indices recorded on Monday and Tuesday.

The ASPI (All Share Price Index) gained by a 37.6 points to close at 3011.2 points, while the MPI (Milanka Price Index) rose by 58.1 points closing the week at 4179.3 points. The CSE would be closed on Friday, which is a Bank and Public holiday.

SLT became the highest contributor towards weekly turnover this week,contributing Rs.606.1 million towards the week's turnover.

The increased interest came amid the company posting a significant 160% growth in its netprofit for the 4th quarter.

Approximately 16.3 million SLT shares traded this week making the counter also the highest traded stock for this week.The share price of the counter appreciated by 13.4% to close at Rs.38 per share, while reaching a high of Rs.38.75 per share for the week.

Renewed interest was witnessed in AMW with a 2 million stake of AMW exchanging hands at a price of Rs.167 per share on Tuesday.

A total of 2.6 million of the counter traded this week, contributing Rs.436.8 million towards weekly turnover.

Despite the increased interest in the counter, the share price fell modestly this week by 0.7% to close the week at Rs.173.75 per share. The highest traded price for AMW stood at Rs.179.50 per share for the week.

Banking sector counter DFCC also saw a notable stake of its shares trading this week. A 1.7 million stake of DFCC traded at a price of Rs.200 per share this week, on Monday.

The total contribution towards weekly turnover from DFCC amounted to Rs.395.3 million, while 1.8 million shares traded for the week.

The counter closed the week unchanged at Rs.199 per share. Within the week however DFCC was seen trading between a range of Rs.202 and Rs. 195 per share.

Another banking counter NDB was also in investor appetite this week. Theshare managed to contribute a noteworthy Rs. 177.7 million towards the total turnover for this week with 851,300 shares trading.

The share showed a slight dip in price comparing WoW to close at Rs.204 per share, while touching a high of Rs. 205 per share. HNB meanwhile announced a 1 for 1 bonus issue on Thursday (After trading hours).

While the market has been anticipating a bonus issue, the ratio announced was above market expectations. Thus, due to the attractiveness of the bonus ratio we believe that HNB prices would appreciate further when the market opens on Monday.

Activity increased substantially this week contributed partly by the above stated stakes, which exchanged hands during the week.

Total weekly turnover amounted to 4.4 billion up by a substantial 64.1% compared to last week. The average daily turnover passed the Rs.1 billion mark to stand at Rs. 1.1 billion this week.

Foreign participation levels maintained at around 20% of total activity remaining more or less unchanged compared to last week.

However foreign buying remained higher than sales, recording a net foreign inflow of Rs. 59.5 million for the week. Foreign purchases amounted to Rs. 889.2 million, while foreign sales totaled Rs. 829.7 million this week.

Among the counters, which took the forefront in terms of trading volumes, were SLT, Tokyo Cement (Non Voting), Vallibel and Dialog and Nawaloka.

As expected by us, strong corporate earnings enabled the market to maintain the positive sentiment despite regular profit taking by the investors.

Activity levels also picked up substantially during the week by 64% in the back of strong interest seen on fundamentally sound stocks. Overall the market gained by 1.26% compared to last week's closing levels.

BOP managed to post a surplus despite high imports in 2006 The Balance Of Payments (BOP) managed to post a US $193 million surplus for the year ended 2006 despite a high import growth fuelled mainly by the increase in petroleum prices.

During the year cumulative exports grew by 8.4% to US $6,882.7 million largely due to contributions from agricultural as well as industrial exports.

Meanwhile high imports of investment goods and petroleum products, which increased by 20.1% and 25% respectively, resulted cumulative imports to rise by 15.7% to US $ 10,253 million during 2006.

Therefore higher imports caused the trade deficit to widen further to US $ 3,370.3 million, up by 33.9% compared to 2005.

However on a positive note worker remittances and inflows to the government increased by 21.3% and 20.9% respectively during 2006, which helped the BOP to record a surplus for the year.

Going forward in 2007 we expect a slowdown in imports largely due to the lower crude oil price projections.

According to our forecasts the oil price is likely to average around US $ 60 level in 2007 resulting in less pressure on importation of petroleum products (on average petroleum imports accounts for around 20% of total imports).

Therefore with pressure on trade balance likely to be modest, we expect the BOP to remain positive during 2007. However the BOP in 2007 would considerably be influenced by the developments in the peace process.

Furthermore surplus in the BOP would reduce the pressure on the currency, which depreciated by 5.5% during 2006.

Thus if the surplus continues during 2007 as expected, it would stabilise the Rupee and encourage further foreign investments in the stock market.

We expect the volatility to remain in the coming week with profit taking likely to continue in the market place.

However we feel that some of the high cap stocks such as Dialog and Distilleries are likely to come up with strong corporate earnings in the coming weeks that could boost the market to higher levels.

Therefore we advise investors to look for counters such as Dialog, Distilleries, ACL Cables etc. while looking to take profits on stocks which have reached attractive price levels.

("HNB Stockbrokers (Private) Limited has the sole copyright for this report and the information and views contained cannot be reproduced or quoted in part or whole in any form whatsoever without the written permission from HNB Stockbrokers (Private) Limited.)