Stocks revive as interest rates slide

Shares rebounded sharply during the week on expectation that Central Bank's rate cut would help bring down the market interest rates, boosting investor confidence in the marketplace. Furthermore the recovery of tea prices attracted strong retail investor interest on plantation sector counters.

The ASPI (All Share Price Index) was up almost 117.8 points or 7.7% to close at 1650.0 points while MPI (Milanka Price Index) ended 136.3 points or 8.3% higher at 1771.7 points.

Conglomerate JKH generated 11% of weekly turnover becoming the key contributor during the week. The stock traded almost 0.75 million shares to generate a turnover of Rs.44.0 million with the stock fluctuating within a broad price range of Rs.51.50 and Rs.67.00 per share.

At Friday's close, the JKH share was up by a significant 28.4% to Rs.65.50 per share. The price of JKH share was seen rising substantially on last trading day of the week.

Renewed interest was seen on plantation sector during the week as Malwatte and few other plantation stocks emerged as top contributors in terms of trading activity. The Malwatte share rose 53.4% WoW as better tea prices lifted Malwatte and other plantation sector counters such as Madulsima, Kahawatte, Balangoda etc. Malwatte in total generated a turnover of Rs.32.5 million for the week, while the bulk of trading took place on Tuesday. The plantation stock traded 1.5 million shares in volume for the week.

Speculative interest pushed Lanka Cement on top with a total contribution of Rs.20.4 million towards the week's turnover. During the week 2.2 million shares of Lanka Cement were traded within a price band of Rs.8.25 and Rs.10.00 per share.

The stock witnessed a 21.9% price appreciation over the week's trading to close at Rs.9.75 per share.

Revived retail interest on Madulsima saw its price jumping by an outstanding 74.1% to close at Rs.11.75 per share for the week. Over 1.9 million shares of the counter were traded adding Rs.19.8 million to week's turnover. During the week's trading the counter touched a peak price of Rs.12.5 per share and a low of Rs.7.00 per share.

Aided by trades on the plantation stocks and the bluechip JKH, activity levels improved by 16.4% WoW to stand at Rs.407.9 million for the week.

Overall, retail investors largely dominated the week's trading activity.

Meanwhile the average daily turnover for the week stood at Rs.101.98 million, up 45.5% WoW.

Foreign participation remained low at 12.3% for the week. Foreign purchases dipped on a WoW basis while foreign sales increased. Foreign purchases for the week amounted to Rs.39.4 million declining by 23.5%, while foreign sales increased 282.4% to stand at Rs.60.8 million resulting in a net outflow of Rs.21.4 million for the week.

The most actively traded stocks for the week were Sierra Cable, Lanka Cement, Dialog and Madulsima.

Interest rates to play a key role

Indices got a boost this week as investors reacted positively towards the slide in interest rates. Furthermore the recovery in tea prices helped plantation sector stocks to rebound attracting more retail investors to the marketplace.

We expect indices to remain volatile over the coming week amidst a mix of bargain hunting and profit taking.

In our opinion the indices are likely to come under pressure at regular intervals, as we expect selling pressure to continue with the rise in the market.

However if interest rates continue to decline over the coming weeks the institutional investors would look more favorably at equities enabling the market to sustain the positive sentiment.

Therefore we advise investors to accumulate highly discounted fundamentally sound stocks in order to capitalize on a possible interest rate decline in the short term.

"This information has been compiled from sources that we believe to be reliable but we do not hold ourselves responsible for its completeness or accuracy.