Jan 21, 2013 (LBT) - The bourse opened the week on a negative note with the ASPI declining by 0.2% to close at 5862 as investors booked profit on certain counters. Turnover however increased to LKR890 mn, with trading in Environmental Resources Investments, Commercial Bank and Sampath Bank accounting for 67% of the day’s total. Losers outpaced gainers with Colombo Investment Trust, Kuruwita Textile and Abans Finance falling by 20.2%, 8.5% and 7.4% offsetting gains in SMB Leasing (X), Miramar Beach and Hayleys Fibre which rose by 25.0%, 12.9% and 9.7% respectively. Meanwhile Asian stock markets were mixed, with shares in Japan sinking as caution set in ahead of the Bank of Japan’s highly-anticipated policy meeting tomorrow.
In economic news, despite the declining trend in Sri Lankan T bills, yield on more long term treasury bonds remained flat across maturities with bond maturing on May 01, 2021 (8 years and 4 months) were sold to yield an average of 11.64% and bonds maturing on July 01, 2028 (15 years, 6 months) were sold to yield 12.25% the same as in the previous auction. Meanwhile 03 year and 05 month bond maturing on June 01, 2016 was sold to yield 10.98%.
While market PEs have been on a recovering trend, we believe that the current multiple of 16.6X does not still fully reflect the valuations of a number of fundamentally strong stocks which are trading at notable discount to the market multiples. With investors having pushed up the price of lower quality companies during the past bull run, an opportunity to invest in companies of higher fundamental value now exists with significant upside potential of reversing relative underperformance. With trading volumes showing increasing trend, we believe that the market is starting its rerating process. Consequently, with the 3Q2013/4Q2012 results yet to be released, we advise investors to take advantage of this window period to select stocks that are likely to outperform based on solid intrinsic values.