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DateLine Monday, 21 April 2008

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Market report

Market regains momentum after festive holidays

The market ended higher for the week with the indices showing an upward trend on all three days of the week.

Interest on few selected plantation stocks lifted retail investor sentiment on their return to trading after the holiday break.

The ASPI (All Share Price Index) gained 57.2 points or 2.19 per cent close up at 2,671.8 points while the liquid MPI (Milanka Price Index) edged up 73 points or 2.23 per cent to 3348.7 points at week's close.

SLT led market activity this week, boosting up the weekly turnover with the 32 million deal on Wednesday.

Overall the counter's contribution to the week's activity amounted to Rs. 2 billion reflecting 78 per cent of the total market turnover. Several large quantities of SLT were seen actively trading closer to the week's end.

The SLT share meanwhile rose to Rs. 49.5 before closing at Rs. 49.25 per share, which is a gain of 1.03 per cent for the week.

Renewed interest pushed up the activity levels of the banking stock NDB, which made a contribution of Rs. 51.1 million, witnessing a rise of 1.47 per cent in price. WoW NDB surged by Rs. 2.50 to close at Rs. 172.50 per share. A total of 0.3 million of NDB shares traded during the week.

Contributing Rs. 29.2 million to the weekly market turnover was the high cap conglomerate Hayleys, which traded a total volume of 0.3 million shares. The stock managed a 1.82 per cent gain WoW to close at Rs. 98 per share. The counter during the week traded within a price range of Rs. 97.25 and Rs. 98 per share.

Investor interest on Overseas Realty saw the share price gaining 7.4 per cent to Rs. 14.5 whilst trading around 1.74 million shares during the week becoming one of the most actively traded stocks for the week. The share price meanwhile ended Rs. 1 up at Rs. 14.5 from last weeks close.

The foreign party deal on SLT which took place on Wednesday helped boost the otherwise weak market turnover which stood at Rs. 2.6 billion during the three day week. The trading started fairly dull on market's first trading day after a four-day weekend.

However week on week the total market turnover was up 15.2 per cent while the average daily turnover stood at Rs. 861 million, showing an increase of 53.6 per cent.

Foreign purchases for the week stood at Rs. 2.1 billion while foreign sales for the week totalled to Rs. 1.9 billion resulting in a net foreign inflow of Rs. 174 million for the week.

The foreign participation for the week stood at 78.7 per cent of the total activity showing a slight increase compared to 71.5 per cent level last week. SLT, Blue Diamonds (Non Voting), Overseas Realty and Pan Asia were among the heavily traded stocks during the week.

Focus on corporate earnings

Positive sentiment continued in the marketplace despite the holiday mood. Activity was witnessed mainly on the plantation sector counters in the back of strong earnings expectations during the 1st quarter of 2008. During the week All Share Price Index (ASPI) gained by 57.2 points while the sensitive Milanka Price Index (MPI) increased by 73 points.

In the week ahead we expect the activity levels to improve with investors continuing to look for trading opportunities mainly in the plantations sector. Furthermore release of corporate earnings for the quarter ended March 2008 are due in the coming weeks, thus we advise investors to monitor these corporate earnings reports and accumulate stocks that have shown healthy financial performance.

"This information has been compiled from sources that we believe to be reliable but we do not hold ourselves responsible for itscompleteness or accuracy. No matter published herein create any liability of any kind of HNB Stockbrokers (Private) Limited or its associates. All opinions, views, findings and conclusions included in this report constitute our judgment of this date and are subject to change without notice.

The future of baking industry

As we are all aware, the global economic environment is changing rapidly and the consumer eating habits are subject to change at a faster rate creating many challenges for personnel in the food industry.

The food raw material shortages and escalating prices, the increasing cost of power and energy and cost of production, administration and distribution will greatly influence the determination of the final finished product pricing. Will the finished product pricing be affordable and acceptable to the consumer? Well this is yet to be seen and identified in the future since income levels of consumers have not increased proportionately in relation to cost of living.

As far as the Baking industry (bakery and biscuit industry) in Srilanka it is time for a major change to re-invent the industry and prepare their human resource asset base to face the challenges in the future.

The sharp price increases of wheat flour, bakery ingredients, cost of power and energy and fuel and L.P .Gas will take place due to external factors which the industry will not be able to control. The effect on these factors will have a major impact on the final pricing of the finished product.

New product innovation based on changing eating habits of consumers, developing cost effective recipes while maintaining quality of the finished product, reduction in overhead cost (production, administration and marketing cost ) will be some of the key factors the personnel in the baking industry will have to carry out in a systematic manner and face the challenges.

Manufacturing of baked products at cost effective rates and priced at an affordable rates to consumers will be the key factor to be in business successfully.

Wheat flour is the key base ingredient in the baking industry. Sri Lanka is a country where wheat is not grown and the country's entire requirement is imported from wheat marketing nations.

Due to the drop in production of wheat internationally and the product also being channeled for the preparation of Bio fuels the future pricing of this product will be very uncertain and increasing prices will be forecasted.

The government of Sri Lanka is also discouraging the consumption of wheat based products in order to promote rice based products and increase rice production locally in order to save the massive amount of foreign exchange that is used up for importing wheat grain and wheat flour. As a result the baking industry will not receive any subsidy from the government of Sri Lanka in order to keep the prices of wheat flour at a lower level.

The other key bakery ingredients too have increased and will increase further in the future. Fats and margarines, bakers yeast, vegetable oils, sugar, skimmed milk, flavors and coloring, dried fruits, are some of the other ingredients which are imported to the country or produced in Sri Lanka with imported raw material (palm oil, palm olein, palm stearine) which cost the country a large amount of foreign exchange.

The prices of locally purchased ingredients like salt, spices, fish and meats, vegetables have increased over a period of time and if cultivation processes are not managed efficiently and productivity not increased the prices of these items too will also increase in the future.

With these major changes taking place will the baking industry survive and continue to manufacture traditional baked products at affordable prices?


Gamin Gamata - Presidential Community & Welfare Service
Ceylinco Banyan Villas

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