Indices dragged down by poor earnings

Colombo bourse dipped this week eroding gains made during the latter part of last week as poor earnings of some of the key high value companies resulted in dampened investor sentiment. The ASPI (All Share Price Index) lost 28.3 points or 1.1 percent at 2501.2 points while the more liquid MPI (Milanka Price Index) slid 74.1 points or 2.6 percent to close at 2816.7 points for the week.

Contributing the largest portion to the week's market turnover, Ceylino Insurance (CINS) recorded Rs. 251.6 million on a trading volume of 1.1 million shares during the week. The counter witnessed a 8.1 percent improvement in its share price, which peaked at Rs. 235.00 per share, before closing at Rs.229.50 for the week. Investor interest was seen on the counter throughout the week.

Nestle (NEST) became the second highest contributor towards the total market turnover this week with a turnover of Rs. 129.4 million aided by a sizeable quantity of shares changing hands on Friday. Over the week 0.4 million shares of NEST traded within a highest price of Rs. 360.00 and a lowest price of Rs. 349.00 before closing a notable 39.4 percent higher at Rs. 350.00 on Friday. Counter became the week's top gainer.

Ranking in the third place was the banking stock Sampath with a total turnover of Rs. 113.6 million. Sampath, which has seen its price rising over the past few weeks, appreciated by a further 7.0 percent during the week to close at Rs. 137.00 on Friday. Over the week a total of 0.9 million Sampath shares changed hands.

JKH retained investor appetite with 0.7 million shares trading this week. The share price dipped Week on Week (WoW) by 3.3 percent to close the week at Rs. 130.25 per share, while trading between the range of Rs. 129.50 and Rs. 135.00 per share. The counter contributed Rs. 93.5 million towards weekly turnover becoming the fourth highest contributor.

Activity levels picked up by 26.3 percent during the week, with turnover amounting to Rs.1.7 billion, compared to holiday shortened last week. Meanwhile the average daily turnover for the week amounted to Rs. 338.9 million.

Foreign participation for the week stood low at 10.8 percent till Thursday, however climbed to 23.3 percent by week's close on Friday recording a noteworthy foreign inflow. Accordingly foreign investors became net buyers for the week, totaling Rs. 119.3 million for the week resulting from foreign purchases of Rs. 454.0 million and foreign sales of Rs. 334.7 million.

Most traded stocks during the week were Dialog, Piramal Glass, Pelwatte, Nawaloka and Ceylinco Seylan.

Point of View

Market to stabilize after the poor run on corporate earnings

Disappointing 2Q earnings of some of the key high value companies dragged the indices down this week with ASPI declining 1.1 percent and MPI losing 2.6 percent on modest volumes.

With a majority of key companies having released their 2Q earnings, we expect the market to stabilize in the weeks ahead. 2Q earnings as we expected have given mixed signals to the market, however, the investors we believe would look more positively towards the second half corporate earnings due to recent positive economic developments such as the decline in interest rates, higher business confidence and brightened growth prospects following the end of war.

Meanwhile, the foreign investors have been slow in entering the bourse, although government securities have seen a $270 million foreign inflow since the end of war according to Central Bank data. While this shows the prevalence of global risk averseness to some extent, it also seems to indicate foreigners' confidence over stability of the rupee and the overall economy.

However, with the outlook for corporate earnings improving on the back of political and economic stability we expect the foreign investors to gradually enter equities which have given superior returns over longer periods.

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.

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