Market up - Blue Chips leading

MARKET GAINED momentum this week with the optimism that prevailed during the week. However, on Monday the market started on a low note but quickly picked up on Tuesday and the rest of the week thus ending substantially higher than previous week’s closing levels.

Both the indices gained considerably with the ASPI (All Share Price Index) concluding at 2632.4 points, which was a 3.37 per cent or 85.7 points increase while the MPI (Milanka Price Index) rose by 3.52 per cent or 121.8 points to 3583.2 points.

Renewed interest was witnessed in the hotel sector counters as a result of the rumours on favourable bookings expected in the last quarter of the year. Stocks such as Riverina, Keells Hotels and Parm Gardens were among the heavily traded hotel sector counters with considerable price gains.

Also, the market saw CIC voting & non-voting shares being traded with significant price appreciations during the week where CIC voting shares becoming a top contributor with a value of Rs.121.4 million to the weekly turnover at a price gain of 24 per cent.

JKH remained the dominant contributor with over 3 million shares being traded thus providing Rs.418 million to week’s total turnover. During the trading week the stock traded at a high of Rs.134.75 and a low of Rs.132.25 to close at Rs.134 per share.

The banking sector counter NDB generated Rs.233 million of value reflecting 10.3 per cent of the total market turnover. The stock closed up Rs.4 at Rs.164 trading approximately 1.43 million shares.

SLT the largest fixed line telecom operator in Sri Lanka became the 3rd highest contributor to the weekly turnover with a contribution of Rs.178 million. The share peaked at Rs.36.25 showing a 0.73 per cent increase before winding up at Rs.34.25 per share.

With the positive performance in the market the activity levels rose to Rs.2.27 billion of turnover showing a satisfactory increase of 42.9 per cent. Meanwhile the daily average turnover stood at Rs.454 million for the week.

Foreign purchases for the week stood at Rs.793.9 million up by 65.4 per cent and foreign sales amounted to Rs.662.3 million up by a significant 368.7 per cent leading to Rs.131.3 million of net foreign inflows which was 61.1 per cent lower on a WoW basis.

Foreign participation out of the total activity was at 32.07 per cent. The heavily traded stocks for the week were SLT, keells Hotels, Vanik Incorp Ltd and Ceylon Glass.

As expected by us, market continued to move upwards with improved activity levels. The average turnover increased by 42.9 per cent compared to last week backed by healthy retail participation.

Overall during the week All Share Price Index (ASPI) increased by 85.7 points while Milanka Price Index (MPI) gained 121.8 points compared to last weeks closing level.

We expect the market to remain dynamic in the coming week, as retail investors are likely to engage in active trading. Meanwhile we saw keen interest on some of the fundamentally sound undervalued counters during the week with institutional investors starting to show interest in the market.

We believe the interest shown on stocks such as JKH, Distilleries to continue during the coming week. Therefore we expect the market to remain positive with strong activity levels during next week.

Sri Lanka’s Gross Domestic Product (GDP) expanded by 6.4 per cent during the 2nd quarter of 2007 compared to 7.7 per cent in the corresponding period last year. Though the economic growth was considerably down compared to last year, it improved compared to the 1st quarter 2007 that posted a growth of only 6.1 per cent.

During the 2nd quarter of 2007 the agriculture, industry and services sectors grew by 3.5 per cent, 7.5 per cent and 6.5 per cent respectively. The relatively low growth in agriculture was mainly due to the decline in tea production by 8.3 per cent and paddy production by 7.6 per cent YoY.

The drop in paddy production witnessed during the quarter was mainly due to the fighting that prevailed in Eastern province between government forces and LTTE.

Meanwhile the industrial sector continued to expand at a decent pace in the back of strong contributions from manufacturing, which grew at 7.1 per cent compared to 5.7 per cent in the corresponding period last year.

The growth in manufacturing can be largely attributed to the boost in textiles and garments industry by 12.7 per cent during 2Q of 2007 compared to 6.4 per cent during the 2nd quarter of last year. However the construction sector growth during the quarter slowed down to stand at 8.6 per cent compared to 9.9 per cent in the corresponding period last year.

The 6.5 per cent expansion in the services sector that accounts for more than 55 per cent of the economy was mainly driven by the growth in telecommunications. Post and telecommunications sub sector grew by 21 per cent during the period under review compared to 12 per cent in the corresponding period last year.

Furthermore the transport sector growth rate dropped to 7 per cent during 2Qof 2007 compared to 11.3 per cent in 2Q of 2006. Banking, insurance and real estate sector growth rate also declined marginally by 0.1 per cent to stand at 8.5 per cent.

In our opinion the high interest rates, inflation and the uncertainty with regard to the Northern and Eastern conflict have contributed towards the slowdown in the economy, thus we feel that the economy would continue to suffer during the remaining 2 quarters dragging economic growth levels down compared to 2006.

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