Birthday joy, pre-Budget rally at Bourse!

Stock indices gain sharply on improved investor sentiment helping market to regain to two month high after closing two month low on Tuesday   

One may call it joy over President Mahinda Rajapaksa’s birthday, his swearing-in ceremony for a second term from today or bullish expectations over his 2011 Budget next week as the stock market gained sharply yesterday.

The benchmark ASPI gained by 93 points or 1.4% and MPI by 132 points or near 2%. The overall bullish day prompted NDB Stockbrokers to headline its daily market report as “Indices join celebrations.”

It said the indices rebounded after declining during the early part of the week. However ASPI and MPI lost 0.53% and 0.59% respectively during the week. “Monday’s budget proposals will determine the direction of the indices next week,” NDB Stockbrokers added. Reuters said ASPI recovered from a two-month low as investors took positions ahead of the 2011 budget due on Monday. Asia’s best performer in 2010 with a 93.9 percent gain.

John Keells Stock Brokers said: “The indices rebounded with renewed buying across the board though activity levels remained low and dominated by banking counter trades.”

Other analysts said the rebound was on account of investors and brokers tipping Budget 2011 to be very capital markets friendly with removal of certain existing constraints as well as anticipated cuts in income tax which will help corporate bottom lines.

Turnover amounted to Rs. 1,204.21 million whilst the best performing sector was services (+3.94%) and worst was Oil Palms (-1.30 %).

Bank, Finance & Insurance and Diversified sectors were the highest contributors to the market turnover, while the sector indices increased by 1.96% and 1.88% respectively. All the sector indices made gains except the Oil Palms sector index.

Sampath Bank made the highest contribution to the market turnover with three crossings of 1,000,000 shares at Rs. 266, while the share price increased by Rs. 5.20 (1.96%) and closed at Rs. 272. Foreign holding of the company declined by 645,800 shares.

John Keells Holdings also contributed significantly to the market turnover with a crossing of 246,600 shares at Rs. 290, while the price increased by Rs. 7.20 (2.46%) and closed at Rs. 301.

Asia Securities said Sampath Bank saw institutional participation whilst Commercial Bank saw foreign play during the day. It also said a mix of institutional and high net worth individuals were active in National Development Bank. “Banking sector counters topped today’s investor preference list picking on Hatton National Bank, DFCC Bank, Seylan Bank and Seylan Merchant Bank (Voting & Non Voting) taking the sectoral contribution to 45.3% of today’s turnover. Heavy weight John Keells Holdings along with Piramal Glass witnessed high net worth and institutional participation,” Asia added.

Foreign investors have sold a net 27.8 billion rupees in shares this year, and on Thursday sold a net 220.4 million rupees.

Reuters said the bourse is trading at the highest forward price-to-earnings ratio in Asia and global emerging markets at 19.6 times, compared with 13.2 and 12.4 respectively, Thomson Reuters StarMine data showed. The CSE’s 14-day relative strength index is at 48.6, towards the lower neutral limit of 30.

The rupee edged up at 111.65/68 rupees a dollar from Tuesday’s close of 111.68/70 as banks sold dollars, currency dealers said.

Low growth projections come under fire

By Cassandra Mascarenhas

Sri Lanka’s growth projections in the short-term have been set at very conservative levels by credit rating agencies RAM Ratings (Lanka) Ltd. and Standard & Poor’s, with S&P estimates showing growth of  6.5% this year and 6.8% in 2011.

These were revealed at a forum held by the Institute of Chartered Accountants of Sri Lanka (ICASL) titled ‘Sri Lanka’s Economic Outlook 2011 – Sustaining the Growth and Rebuilding Momentum,’ but were shot down by the Chairman of the Ceylon Chamber of Commerce Anura Ekanayake who said that he could not justify growth by a mere one to two per cent when Sri Lanka is currently more than capable of reaching five to six per cent.

“In both presentations what I saw was that the growth projections are far below the potential of Sri Lanka. I cannot justify a one per cent increase in growth instead of 5 to 6%. The forecasts are extremely conservative. I don’t blame the forecasting agencies, but the point here is there are a number of things that both the Government and the private sector that have to be done in order to go ahead,” he said.

Chairman of Laugfs Holdings Limited W.K.H. Wegapitiya mirrored his thoughts, stating that what had been visualised by both agencies and what would happen in reality were two different things, going on to say that one of the key mistakes was not having a consistent economic policy and the lack of a strong capable Government, which is now available, but still has a long way to go in terms of policy making.

Ekanayake went on to say that they hoped the upcoming budget would bring about reforms especially in the tax regime, which will bring about a sharp change that would boost Sri Lanka to reach the top 20 in world rankings in the near future, but insisted that these changes needed to be brought about quickly.

The forum, which discussed Sri Lanka’s current positioning on a global and regional platform, included two thorough presentations from the representatives of the credit rating agencies. Risk factors and areas of reform for further growth were also highlighted with the expected economic reforms under the IMF programme and the improvement of investor confidence with the return of peace playing key roles in the growth to come in the country. Fiscal risks however remain, due to Sri Lanka’s high debt and interest burdens.

Fundamental shifts of economic power from the West to the East in the decade to come were identified as crucial turning points and the importance of Sri Lanka building strong ties with countries such as China and India, hence easing dependence on Western countries such as the US and EU was stressed upon at the forum.