Stocks soar on renewed hopes

The market rally driven by the IMF loan hopes continued, as COlombo Stock Exchange (CSE) became one of the best performing stock exchanges in the world gaining 63 percent year to date.

The All Share Price Index (ASPI) climbed 9.0 percent or 202.2 points to 2456.9 points during the week to a 10-month high while the more liquid Milanka Price Index (MPI) jumped 9.5 pecent or 240.0 points to 2764.8 points for its highest close since September 2008.

Interest was largely concentrated on blue chip stocks during the week out of which JKH was the hot pick. Dominating the market in terms of turnover for the continuous third week JKH managed a turnover of Rs.2.8 billion for this week, representing 42 percent of total weekly turnover.

JKH also became the highest traded stock with 21.5 million of its shares trading within a price range of Rs.116.00 and Rs.145.00. Week on week (WoW) the share picked up by a sizeable 18.7 percent to close at Rs.138.00 on Friday.

Capturing investor interest for yet another week, were the two blue-chip banking stocks NDB and Commercial Bank (COMB). NDB contributed Rs.227 million and COMB contributed Rs.185 million to the week’s turnover.

A total of 1.6 million NDB shares changed hands during the week, while the share price appreciated by a significant 19.9 percent WoW to close at Rs.150.75.

Meanwhile COMB also witnessed a sizable increase in its share price rising by 10.5 percent compared to last week, closing at Rs.139.25 per share for the week with total trading volume amounting to 1.4 million.

Meanwhile Ceylon Theatres (CTHR) witnessed a 12.9 percent increase in its share price WoW, while contributing Rs.170 million towards the weekly turnover. The counter over the 5 trading days traded between prices of Rs.43.00 and Rs.50.00 per share, before closing at Rs.48.25 on Friday after trading a total of 3.9 million shares for the week.

Activity levels were significantly higher during the week with the total turnover amounting to a staggering Rs.6.8 billion compared to Rs.2.2 billion recorded last week. The average daily turnover for the week stood at Rs.1.35 billion up by a substantial 207.3 percent WoW as against Rs.440.8 million last week.

Improved foreign activity was the highlight this week with total foreign participation standing at 36.8 percent of total activity compared to 20.2 pecent posted last week. Major portion of foreign activity came through trades on JKH. The foreign purchases amounted to Rs.2.49 billion during the week while the foreign sales amounted to Rs.2.5 billion resulting in a marginal net foreign outflow of Rs.8.2 million.

Volume wise the highest traded stocks during the week were JKH, Sierra Cables, Piramal Glass, Ceylinco Seylan and Nawaloka.

Point of View

More gains likely amidst a possible re-rating

In line with what we expected, indices jumped during the week in the back of strong domestic as well as foreign investor interest mainly on high cap stocks. During the week market gained by a staggering 9.0 percent compared to previous weeks closing levels.

We expect the sentiment to remain bullish over the coming week with investors likely to show more interest on fundamentally sound stocks. The market valuations have adjusted significantly over last 1-2 months with market PE going up to 10.4x compared to 6.4x at the end of April 2009.

Over the last 5 years CSE traded at a PE multiple of 12.0x on average, higher than the existing level leaving further room for growth. Furthermore considering the absence of war situation in the country we believe the market could be rated higher than the historical average of 12.0 times, thus we do not rule out the possibilities of a sizable re-rating going forward.

Taking in to account these factors we continue to advise the investors to look for undervalued stocks in the marketplace with a medium to long-term view.

The information contained herein has been compiled from sources that Acuity Stockbrokers (Private) Limited (ASB) believes to be true and reliable but we do not hold ourselves responsible for its completeness or accuracy. No matter published herein create any liability of any kind on ASB.

All opinions, views, findings and conclusions included in this report constitute ASB’s judgment of this date and are subject to change without notice. ASB has the sole copyright for this report and the information and views contained cannot be reproduced or quoted in part or whole in any form whatsoever without the written permission from ASB.