Market continues upward trend

The market continued its uptrend yet again this week with both indices advancing over the week. The ASPI gained 3.94% (or 236.82 points) while the S&P SL 20 Index gained 3.67% (or 124.91 points). The ASPI and S&P SL 20 Index closed at 6250.00 points and 3530.90 points, respectively.

Lanka Ceramic topped this week's list of top contributors to market turnover, amid Royal Ceramics Lanka's purchase of a significant 76.11% stake in the company on 6th May. The stock accounted for 30.73% of total turnover with a value of LKR 3.26bn.

Commercial Bank made a contribution of LKR 1.06bn to total turnover accounting for 9.98% while Distilleries Company of Sri Lanka contributed LKR 749.49mn (or 7.07%) to total market turnover. Daily average turnover value for the week amounted to LKR 2.12bn compared to last week's average of LKR 809.47mn (+161.83% W-o-W). Total turnover for the week subsequently amounted to LKR 10.60bn compared to last week's 4-day cumulative of LKR 3.24bn. Market Capitalization increased over the week by LKR 90.77bn (or 3.94%) to close at LKR 2395.55bn compared to last week's close of LKR 2304.78bn.

On a sectoral level, the Manufacturing sector was the highest contributor to the week's total market turnover value, accounting for 37.26% (or LKR 3.95bn) of the market. This was aided primarily by the takeover of Lanka Ceramic which accounted for 82.46% of the sector turnover as 87.82% of its shares were acquired by Royal Ceramic along with Vallibel One and other individuals. The Banking & Finance sector trailed behind with a contribution of LKR 3.25bn to account for 30.66% of total market turnover value. The sector - backed mainly by Commercial Bank and National Development Bank - accounted for 45.03% (LKR 1.46bn) of total sector turnover.

The Diversified sector meanwhile, was the 3rd largest contributor to the week's turnover value, accounting for 9.39% (or LKR 994.57mn), helped by Vallibel One and JKH which contributed 58.82% to total sector turnover.

In terms of share volume, the Banking and Finance sector was the biggest contributor this week, accounting for 27.00% (or 82.27mn shares) of the market's total trades for the week. The Manufacturing sector contributed 18.02% of the total traded volume as 54.92mn shares were traded while 46.50mn shares in the Diversified sector changed hands, accounting for 15.26% of the week's turnover volume.

Lanka Ceramic was the highest price gainer for the week aided largely by RCL's takeover of the company. The counter recorded a W-o-W gain of 44.50% to close at LKR 115.60, compared to last week's close of LKR 80.00. Chilaw Finance gained 43.88% W-o-W to close at LKR 14.10 while Capital Alliance Finance gained 40.00% W-o-W to close at LKR 25.90. J.L Morisons and Bimputh Finance were also amongst the top gainers for the week, gaining 34.74% and 29.12%, respectively.

The highest price loser for the week was Selinsing with a W-o-W decline of 18.66% to close at LKR 980.20, relative to last week's close of LKR 1205.00. Mercantile Shipping declined 10.06% W-o-W to close the week at LKR 161.00, while Hapugastenna Plantations closed at LKR 33.20, representing a 7.26% decline over the week.

Foreign investor activity recorded a net buying position of LKR 0.66bn relative to LKR 0.35bn recorded last week, with daily average net inflows increasing 52.59% W-o-W to LKR 0.13bn from last week's average of LKR 0.09bn. Average foreign purchases increased 111.96% W-o-W to LKR 0.38bn from LKR 0.18bn recorded last week, while average foreign sales amounted to LKR 0.24bn relative to last week's average of LKR 0.09bn (169.12% W-o-W increase). In terms of volume, Distilleries and HNB led foreign purchases, while Commercial Bank and Renuka Agri led foreign sales. In terms of transaction value too, Distilleries and HNB led foreign purchases, while Commercial Bank and Royal Ceramics led foreign sales.

Point of View

Markets which have been gradually pricing in a further rate cut over the past few sessions made a sharp jump this week ahead of the Central Bank's official announcement of a 50bps policy rate cut. Broad-based positivism pushed markets over 200 points this week, with both retail and institutional investors showing renewed vigor. Turnover value reached a 32-week high of LKR 4.1bn on Monday amid active retail participation across the board. Cumulative turnover for the week consequently increased to LKR 10.6bn, averaging LKR 2.1bn, a 107% increase from the year-to-date daily average of LKR 1.0bn. Upbeat sentiment is likely to continue in the week ahead.

In a widely anticipated move, the Central Bank on Friday reduced its key policy rates pushing the Repurchase Rate down to 7.00% and the Reverse Repo Rate down to 9.00%. Contrary to an expected 25bps reduction however, the Central Bank announced a 50bps rate cut while simultaneously providing an additional boost to liquidity by increasing the reserve maintenance period to 2 weeks (cf. 1 week). The monetary authority added that the downward revision to the policy corridor is justified given the moderation in domestic economic activity and since current levels of inflation and inflationary pressures do not pose any immediate upside risk.

Money market and benchmark treasury yields were consequently lower, with T-bill rates across 3 and 6 month maturities declining 2 bps and rates on the 1-year T-bill declining 4bps. Inter-bank call money rates meanwhile, declined 53 bps to close the week at a weighted average rate of 8.99%.

The weekly average weighted prime lending rate (AWPR) which has declined approx. 85 bps since the policy rate cut in December declined a further 7bps by Friday to close at 13.48% (cf. 13.55% last week).