Market activity levels expected to improve

STOCK MARKET: The negative trend continued for yet another week as investors opted to stay away from the market, waiting patiently for positive news to arrive.

Activity levels saw a considerable drop this week partly due to trading been limited to just four day this week with Thursday being a holiday. During the Week ASPI dropped by 33.7 points to close the week at 2525.8 while the more sensitive Milanka Price Index (MPI) dropped by 38.3 points to close the week at 3576.1 points.

The conglomerate giant JKH continued to feature among the top contributors towards market turnover. JKH during this week announced its results for the FY2007 with profits up by 16% compared to the previous year.

The Counter during this week contributed Rs.101 million towards market turnover while trading within a range of Rs.146 and Rs.140.

The counter closed the week at Rs.145, showing a drop of 1% compared to the previous week.

CIC became the second highest contributor towards this week's market turnover, contributing Rs.28.4 million.

During the week 750,800 CIC voting shares were seen trading at a price range of Rs.40.00 and Rs.36.50. The Counter closed the week at Rs.38.50, up by 0.6% compared to last week.

ACL Cable also managed to attract sizable investor interest this week as the counter generated a turnover of Rs.24.8 million. ACL shares traded at a high of Rs.132 and a low of Rs.127 while closing the week at Rs.127.50. The Counter lost 3.4% of its value during this week's trading.

Another conglomerate counter Aitken Spence witnessed 60,000 of its shares trading during the week contributing Rs.20.4 million towards weekly turnover. The Counter traded during this week at a price of Rs.339.75, which is a 1.2% drop from the last traded price for the Counter.

Total market turnover for the week stood at a dismal Rs.475.6 million while the average daily turnover for the week stood at Rs.118.9 million. Average daily turnover this week saw a massive 78% decline compared to last week's average daily turnover of Rs.537 million.

However the turnover levels during the last two weeks were, to an extent distorted by two large trades of which inflated the turnover figures of those two weeks.

Foreign investors continued to remain net buyers for yet another week amounting to Rs.239.9 million. Foreign purchases this week stood at Rs.292.4 million while foreign sale for the week stood at Rs52.5 million.

Ceylon Glass, Seylan Bank (NV), CIC, JKH and SLT were among the highest traded stocks for the week.

Market continued on its downward trend with both indices moving further in to the negative territory. Activity levels dropped during the week despite foreigners remaining net buyers in the market. Overall the market lost 33.7 points during the week compared to previous week's closing levels.

Average inflation as measured by the CCPI stood at 17.4% in May, which remained flat from the previous month. Furthermore the Year on Year (YoY) inflation declined by a significant 2.6% to stand at 13.7% compared to 16.3% in April. Inflation witnessed during the month of May can be mainly attributed to the changes in fresh fish, rice, bread, wheat flour and vegetables.

As pointed out in our strategy report released on 07/05/2007, inflation would show a downward trend in the coming months with Central Bank trying to mop up the excess liquidity in the economy mainly through Open Market Operations (OMO).

Thus in our opinion the annual average inflation would decline to 16.8% in June with the downward trend expected to continue during the coming months. Meanwhile the Central Bank last week decided to keep its policy rates unchanged with Repurchase (Repo) standing at 10.50% and Reverse Repurchase rate at 12%.

We expect the market to remain weak during the coming week with most investors are likely to adopt a wait and see approach. Though the negative sentiment would continue, activity levels are likely to improve during the coming week compared to this week.

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