Budget to be focus of stock market investors – Brokers

The 2011 Budget to be presented in Parliament later this month is expected to be the focus of stock market investors, according to brokers.

The Colombo bourse hasn’t lived up to the expectations of impressive corporate earnings boosting investor sentiment. Last week the market struggled, although it started the week with increases in both the ASPI and Milanka.  However, as the week progressed, both indices declined consistently, with the ASPI noting a decline of 19 points to close at 6658.45 and the Milanka shedding 42 points to end at 7199.62.

“Despite the positive corporate earnings, the market continued to remain in the negative territory,” Asia Securities said.

It believes that a few reasons for the prevailing negative sentiment were as a result of investors freeing cash to subscribe for the IPO (Laugfs Gas Limited, which was announced as oversubscribed) and the rights issues (Overseas Realty, Parquet and MTD Walkers).

“We expect the market to revive and return to its lively ways with fresh buying as the IPO shares start trading, coupled with the upcoming budget announcement,” Asia added.

It is continuing with the advice that investors should capitalise on attractively low priced counters which are fundamentally strong with sustainable growth potential. The Colombo bourse currently trades at a 4 quarter trailing PE of 25.6X.

“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 an upside on Aitken Spence Hotel Holdings, Eden Hotels and Keells Hotels, whilst we maintain our recommendations on the Banking sector stocks such as Sampath Bank and Nations Trust Bank. Due to the expected increase in disposable income resulting in 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 whilst Lanka Ashok Leyland has also been identified as a value stock. However, we are in the process of revisiting our models and recommendations we maintain our ‘BUY’ stand on,” Asia Securities said.

Acuity Stockbrokers said the four-day trading week at the Colombo bourse saw  relatively lower levels of activity with both indices losing marginally, while strong investor interest in the current IPOs have been visible.

“The current market has attracted high net worth and strategic investors who are bullish on the outlook for the Sri Lankan economy and actively consolidating their positions. We expect the market to remain steady with investors looking to the forthcoming budget for direction,” Acuity added.