Malwatte appeared among the investor favourites:

Corporate earnings grew by healthy 31 per cent

Overall market momentum remained sluggish with indices continuing to slide downward for the 3rd consecutive week. The decline prices of market heavyweights such as Dialog, JKH and SLT was the primary factor behind the fall in indices.

The ASPI (All Share Price Index) lost 46.3 points or 1.81 per cent to 2513.9 points while the more liquid MPI (Milanka Price Index) slipped a significant 74.3 points 2.20 per cent to close at 3299.7 points on Friday, compared to last week’s closing levels.

Colombo Dockyard emerged as the highest contributor for the week with turnover amounting to Rs.129.3 million of which the majority was observed on Thursday.

The counter was also the number 1 traded stock during the week with a volume of around 2.5 million shares. The Dockyard share closed 0.75 rupees or 1.42 per cent lower at Rs.52.25 after peaking at Rs.54 during the week.

Plantation sector counter Malwatte appeared among the investor favourites for yet another week with a turnover of Rs.60.9 million, representing almost 6.2 per cent of total market turnover.

The share price of Malwatte closed 4 rupees higher at Rs.34.50 for the week witnessing an impressive 13.1 per cent price gain. During the week approximately 1.8 million Malwatte shares changed hands.

Ranking in the 3rd place is the banking stock DFCC. During the week approximately 0.4 million DFCC’s shares were seen trading contributing over Rs.50.8 million to weekly market turnover.

Counter traded between a high of Rs.132 and a low of Rs.125, before closing at Rs.130.25 on Friday, witnessing a Rs.5.25 or 4.2 per cent price appreciation during the week.

Speculative trading was witnessed on the low cap stock Touchwood during the week, which posted a turnover figure of Rs.47.5 million, becoming the 4th largest for the week. The week saw around 0.43 million Touchwood shares trading within a wide price range of Rs.99 & Rs.121.

Although the counter topped in terms of turnover the share price saw dipping by 8.7 per cent to close at Rs. 110.25 on Friday. Total turnover for the week amounted Rs.984 million, showing a 21.4 per cent reduction compared to last week with Thursday contributing the highest turnover of Rs.358.5 million.

The cautious approach adopted by the investors in the back of rising interest rates and inflation restricted the activity levels causing average daily turnover to stand at Rs.196.9 million compared to Rs.250.6 million last week.

Meanwhile foreign investors remained on the sidelines this week accounting for only 22.7 per cent of the total market activity compared to 20.6 per cent last week. Foreign purchases stood at Rs.279.4 million an 18.1 per cent drop compared to last week while foreign sales witnessed a smaller drop of 4 per cent to Rs.168.3 million.

The higher foreign buying compared to foreign sales resulted in a net foreign inflow of Rs.111.10 million for the week, down by 33 per cent comparable to last week’s Rs.165.70 million

Heavily traded stocks for the week were Dockyard, Vallibel, Malwatte and Kelsey.

Indices continued to move towards negative territory for the 3rd consecutive week with no positive news from the macro front. Market lost 46.3 points during this week’s trading.

We expect the sentiment to remain negative with interest rates continuing to go up affecting the stock market performance. Furthermore, activity levels would remain modest although trading opportunities are likely to exist in the market place.

The corporate earnings of the top 15 companies in terms of market capitalization grew by a healthy 31 per cent in the back of turnaround in LIOC and strong performance by banks. However excluding LIOC, which made a loss last year, the earnings growth is limited to 20 per cent.

The four banking stocks included in our analysis contributed 35 per cent towards the earnings growth over the last 9 months. Furthermore the exceptional performance of Carsons and Bukit Darah amid high palm oil prices also contributed towards profit growth in 2007.

In our opinion the last quarter earnings growth would be lower than the 1st 9 months with banking sector and LIOC earnings likely to come under pressure.

Although the high cap counters posted strong earnings this year the mid and small caps earnings were negatively impacted by higher interest rates and inflation. We feel the total market earnings growth would be lower than the high cap earnings growth, thus we stick to our 22 per cent market earnings growth forecast for 2007.

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