Fresh upside in Bourse after correction

Market lost Rs. 103 billion in value

The Colombo stock market last week saw its value lose by Rs. 103 billion but the correction was welcome heralding a fresh opportunity for an upside this week brokers said.

The Colombo bourse experienced the long awaited correction last week, where the ASI and the more liquid MPI shed 4.5% week on week (WoW).

“We continuously advised the investors to adopt a cautious approach and free up cash realizing profits and also to capitalize during the correction. However the high activity levels during the week indicated continuing investor sentiments and the strong recovery on Friday depicts that the market would come in to its lively ways in the coming weeks with the earnings season coming around the corner,” Asia Securities said.

“However we believe Investors should continue to take positions in fundamentally strong counters with sustainable growth potential and healthy ROEs,” it said adding that the Colombo bourse currently trades at a 4 quarter trailing PE of 26.6X.

“Along with our key buys our main stay recommendations remain; Diversified Hemas Holdings and Chemical Industries Colombo and despite the recent gains in hotel sector we still see upside on Aitken Spence Hotel Holdings, Eden Hotels and John Keells Hotels. Whilst we maintain our recommendations on the Banking sector stocks such as Sampath Bank and Nations Trust Bank,” Asia Securities said.

“Due to expected increase in disposable income resulting a boost in consumption the Food and Beverage sector stocks such as Lion Breweries, Bairaha Farms and Distilleries remain attractive. Manufacturing stocks such as Lanka Wall Tiles and Tokyo Cement are also amongst our favourites. However we are in the process of revisiting our models and recommendations we maintain our buy stand on,” the stock broker said.

Meanwhile Acuity Stockbrokers said that indices declined throughout the week as the correction was inevitable after a long bullish trend.

“Retailers booked profits after weeks of buying. We anticipate that there will be renewed buying interest as the investors will pick bargain stocks with quarterly earnings potential,” Acuity said.

Last week the All Share Price Index (ASPI) dipped drastically by 314.2 points to close the week at 6,833.6 points (-4.4%) whilst Milanka Price Index (MPI) also dipped at an equal pace by 362.8 points to close at 7,466.3 points (-4.6%). Indices gained mainly on the back of gains made John Keells Holdings (-8.0% WoW), Hatton National Bank (-2.4% WoW), Dialog Axiata (-3.7% WoW), Commercial Bank (-4.9% WoW), National Development Bank (-3.3% WoW) and Hemas Holdings (-6.6% WoW).

After an extended rally, market witnessed the long awaited correction this week. The market saw heavy profit taking throughout the week, especially in blue chip counters. State institutions played an active role on CSE during the week, where the week recorded the highest turnover of LKR12.5 bn after its record of LKR33.4 bn on 1st April 2008. Consequently, average daily turnover for the week stood at LKR4.9 bn.

Hatton National Bank emerged to be the top contributor during the week making up circa 38.9% of the week’s turnover, driven by institutional interest. The counter witnessed a strategic stake of 10.7% changing hands on Monday where it is believed that CDB Exports Ltd (stake of 6.49%) with Brown & Co (3% of their 5.76%) divested their holdings whilst high net worth players along with a state fund and several other institutions absorbed in the disposal. Institutional interest was evident in heavy weight John Keells Holdings and banking sector counters such as National Development Bank, Commercial Bank and Seylan Bank. Further, banking sectoral contribution for the week stood at near 55.2% of weekly turnover. Among other blue chip counters that traded strongly during the week were Colombo Dockyard, Richard Pieris, Brown & Co and Hayleys. Foreign selling was evident in Colombo Dockyard with local players absorbing in the sales whilst PC House along with John Keells Hotels also saw institutional interest. Retail interest was visible in Nawaloka Hospitals, well sided by their subdivision of 01 into 02 during the week whilst Richard Pieris also saw high net worth and retail play.

Citizen Development Bank initiated trading during the week and saw its price gaining an impressive 175% on its first day. Moreover, Laugfs Gas Limited obtained CSE approval to list 75mn voting ordinary shares @LKR23.0 and 52mn non-voting ordinary shares @LKR15.0 with the date of subscription opening on 04.11.2010.

Further, 10% price band was imposed on Colombo Land & Development (Warrant 2015), Ceylon Tea Brokers and Muller & Phipps during the week.

The week saw a net foreign outflow of LKR1,208.3 mn where foreign purchases for the week amounted to LKR2,894.4 mn whilst foreign sales amounted to LKR4,102.7 mn.