Stock market rebound gathers momentum

The rebound in the Colombo stock market gathered further momentum yesterday, with retailers remaining and those with improved sentiments reinvesting gains from mid-day profit taking.

The latter was evident as the market originally rose sharply with ASI up 0.8% and MPI by 1.1% and thereafter slowed down before gaining upwards once again. Throughout the day, both indices remained in positive territory before the ASI closed up 0.5% and the MPI by closed up 0.6%.

A fresh transfer of a 5% stake, amounting to 23 million shares of Aitken Spence from Distilleries to Melstacorp at Rs. 110, in a deal worth Rs. 2.54 billion, boosted turnover to Rs. 3.07 billion.

With yesterday’s transfer Melstacorp has acquired almost the entirety of Spence stake from its parent Distilleries, whilst only a further 0.8 million shares remain.

The high volume of 60.4 million shares done via 13,211 trades reflects the level of activity yesterday largely dominated by retailers. Both were new highs whilst on Monday volumes were 33 million shares done via 10,000 plus trades. Though less active, foreigners remain net buyers collecting top stocks.

Premier blue chip JKH too was inactive with Captains and foreigners focused elsewhere. Captains were seen collecting Sampath Bank whilst ETF was picking up DFCC, Distilleries and ACL Cables. EPF was absent.

“The broader market started the day in the green but saw the MPI dip into negative territory due to a drop in John Keells Holdings. However, positive sentiment across the board resulted in the indices soon recovering,” NDB Stockbrokers said.

“Improving activity levels is now signalling a regain in investor confidence as all three indices consolidated their stay in the green,” said Softlogic Stockbrokers.

Asia Wealth Management added: “The Bourse enjoyed active trading and extended its stay in green” and said retailers making a strong comeback was noteworthy and this was evident through their active participation in retail favourite counters.

Lanka Securities too said retail interest continued with poultry companies also getting into the act and added that many counters with lower absolute values gained ground on the hope of better times ahead. “However, the worrying factor remains to be the rising rate of interest. Yields on all three maturing treasury bills edged higher in auction,” it added.

Analysts said retailers were revitalised in anticipation of a more pragmatic capital market regulation by the incoming SEC chairman, whilst others noted the fresh round of buying was akin to return of bargain hunters given the original 20% fall in ASI last month and attractive price earnings ratio.

However, the year-to-date negative return has been reduced to 16% by yesterday, thanks to the recent revival. The market’s value rose by Rs. 35 billion yesterday, bringing the total to Rs. 106 billion since the 20 July meeting between President and Finance Minister Mahinda Rajapaksa and capital market stakeholders.

Whilst Spence boosted turnover levels NDB Stockbrokers said interest was seen in Distilleries and DFCC Bank. Meanwhile, Colombo Land and Citrus Leisure saw considerable retail activity.

The Banking, Finance and Insurance sector emerged as the second highest contributor to the market turnover (due to DFCC Bank) and the sector index moved up by 0.29%. The share price of DFCC Bank appreciated by Rs. 3.90 (3.39%) to close at Rs. 119.00.

Colombo Land, Citrus Leisure and Distilleries were also seen among the top contributors for the day. The share price of Colombo Land gained Rs. 2.30 (6.55%) to close at Rs. 37.40 while Citrus Leisure saw its share price sliding Rs. 1 (3.14%) to close at Rs. 30.80. The share price of Distilleries jumped Rs. 4 (3.36%) to close at Rs. 123.

Softlogic Stockbrokers said JKH sustained its pose as a key contributor for the day as it surged 0.8% at its highest to close at Rs. 198.40 (+0.3%) along with Sri Lanka Telecom, which secured a gain of 3.93% at its close of Rs. 39.30.

“Retail participation encompassed the momentum with main focus surrounding Colombo Land and Development, HVA Foods, Lanka Hospitals, Citrus Leisure and its Citrus Leisure [Warrants 0019]. Further, several large on-board transactions were witnessed in a number of penny stocks; Beruwala Resorts, Panasian Power, Free Lanka Capital and Hydro Power Free Lanka,” Softlgic added.

DNH Financial said it sees no credible reason for medium to longer term investors to shy away from the domestic Bourse given the prospect of a gradual re-rating over the next few months underpinned by macroeconomic and corporate EPS growth.

“However, for those seeking speculative gains, the Bourse is clearly likely to disappoint as the opportunity to realise short term gains is likely to prove more and more difficult,” it added.

“While investors may perceive high interest rates as stealing the appeal for equities, we do not expect this to happen in the short term given the relative asset allocation disconnect between equities and interest rates. Accordingly, we believe that the next few months will offer an attractive opportunity for risk-savvy domestic investors to be able to proactively position themselves to capitalise on a positive movement in the market. We also believe that for international fund managers squaring off their books or increasing their emerging markets equity allocation, Sri Lanka offers an attractive investment opportunity against a nervous global markets backdrop,” DNH Financial said.