MARKETS

Blue chips gain investor attention in March

Index heavy blue chip stocks gained investor attention during the month. This led the market to incur only minor losses (-0.7% MoM, down 37.89 points) during March compared to heavy losses seen in January (-6.3% MoM) and February (-4.1% MoM). The market has been incurring losses since last August and has lost 10.8% during Jan - March this year. Such sharp losses have now paved the way for the CSE to trade at low multiples, appealing to value and growth investors, in our view. Market attractiveness and certain positive news from the macro front (expectation of the receipt of the next tranche of IMF loan) kept the sentiments alive towards the end of the month. The market traded on thin volumes during the month recording an average daily volume of 30 million, compared to 54 million and 46 million in February and January. Despite lean volumes, the average daily market turnover was recorded at Rs 1.6 billion.

However, the figure is inflated by the Rs 16 billion turnover the market witnessed on March 16, on account of JKH deal between the EPF and a Malaysian sovereign wealth fund. Excluding that, the average monthly turnover would have been Rs 873 million for the month.

The month saw a net foreign inflow of Rs 18 billion, mainly aided by EPF selling JKH and SPEN stakes to foreign investors.

In early March, the SEC ceased listing via 'introduction' in an attempt to curb manipulation.

Most of the companies that took a listing through an 'introduction' offered little or no free float, making the shares very illiquid and favourite picks among price manipulators.

Access Engineering was oversubscribed 1.5 times at its Initial Public Offering. The company offered 20 million shares at Rs 25 per share to raise Rs 500 million. Mackwood Energy IPO was also oversubscribed on its opening day, drawing applications worth of Rs 400 million.

The IPO offered 25 million shares at Rs 14 per share to raise Rs 350 million.

The inflation rose 5.5% YoY mainly due to revision in domestic petroleum prices, electricity charges and bus fare in mid February 2012. However, the annual average inflation has come down slightly from 6.1% in February to 5.9% in March.

Crude oil prices

Oil prices surged during the month in tandem with increasing supply side shocks. Geopolitical tension and unplanned outages in non OPEC countries hurt supply of oil.

Rubber prices

Rubber prices sharply edged up during the month, supported by rising oil prices and heavy rains in Malaysia and Hainan region in China, which is China's major rubber producing belt.

The Association of Natural Rubber Producing Countries (ANRPC) estimates that global demand for natural rubber to see a muted growth during 2012 because of unexpected heavy rains in plantations in Malaysia and China.

Tourist arrivals

Arrivals for the month of February rose 27.0% YoY. Arrivals from the Western Europe recorded a low growth of 17%, while arrivals from the Eastern Europe recording a growth of 62%The Sri Lankan Tourist Development Authority source says that online visa system and the infrastructure development have positively contributed towards the high arrivals. Arrivals from the UK market were subdued owing to the economic recession and the murder of a British tourist in December. YTD the country has seen arrivals of 169,423, up 29.0% YoY.

The International Energy Agency expects global oil demand to grow by 0.9% YoY to 89.9 million of barrels per day (mb/d) in 2012. Downcast global economic outlook and high oil prices are expected to lower demand for energy consumption.

Copper prices

Copper prices further dipped during the month, with China's manufacturing sector slowing down. China is the world's largest red metal consumer. However, as the demand from the US and other major copper consuming countries remains strong, it is expected that copper will see a steady demand.

Tea prices

Tea plantation crop declined notably during March as a result of extremely hot and humid conditions. The crop intake for the month has fallen ~20% to 25%YoY. Meanwhile, regional plantation companies and privately owned tea factories are facing stern cash flow problems as the tea prices are experiencing a slump. Rise in production cost owing to wage hike and recent fuel and electricity charges has also aggravated the situation.

However, towards the end of the month low grown tea prices in particular rose in the Colombo Auction owing to strong demand with the rupee.

Bartleet Religare Securities