The Colombo stock market which witnessed haphazard movement throughout the week peaked during Tuesday and lost enthusiasm thereafter, to close in the red territory, whilst foreigners became net buyer during the week. The ASI lost 18.3 points WoW to close at 5,792.7 points (-0.3%), whilst the S&P SL20 Index gained 23.2 points WoW to close at 3,197.9 points (0.7%). Indices dipped mainly on the back of losses made by Ceylon Guardian Investment (-8.9% WoW), Aitken Spence (-3.1% WoW), Ceylon Tobacco (-0.5% WoW), Dialog Axiata ( -1.1% WoW) and Aitken Spence Hotel Holdings (-3.5% WoW).
The overall performance of the stock market remained stagnant during the week whilst several crossing were witnessed over the week. The budget presented on Thursday lured mixed sentiment as investors remained prudent, observing the potential policy revisions. However the week witnessed few large scale transactions and retail participation, whilst institutional and high net worth interest was prominent in Bank Finance and Insurance sector. Commercial Leasing and Finance emerged as the week’s top turnover contributor adding c. 22.5% to the week’s total turnover mainly driven by crossings witnessed on Monday and Friday.
Commercial leasing and Finance that featured a crossing of 130mn shares at LKR5.0 on Monday emerged as the highest volume traded stock for the week with a cumulative 148.0mn shares being traded over the week. In addition, counters such as Commercial Bank of Ceylon, Hatton National Bank, John Keells Holding and Sampath Bank also witnessed crossings during the week. On the bak of these large trades daily average turnover for the week increased to c. LKR 656.2mn against LKR 449.5mn recorded during the previous week.
Meanwhile Finalys Colombo announced its first interim dividend of LKR1.0 per share for 2013, whilst Commercial Development announced an interim dividend of LKR2.0 per share for 2013. In addition CSE approved the listing of normal shares of Amana Bank on the Diri Savi board. Retail investors pursued counters such as Touchwood Investments, PC House Holding and PC House. However the week recorded a total share volume of 297.5mn against 131.1mn recorded in the previous week, which is a 126.9% WoW gain.
During the week IMF commended Sri Lanka for managing the inflation, economic growth and stable exchange rate however it continues to maintain the economic growth forecast for 2013E at 6.5% YoY which is below the Central Banks forecast of 7.7%YoY. However IMF warned that Sri Lanka could face high interest rates on USD denominated borrowings in the event US Federal Reserve restricts its stimulus.
The week saw foreign purchases amounting to LKR1,076.0mn whilst foreign sales amounted to LKR1,018.0mn. Market capitalisation stood at LKR 2,409.7bn and the YTD performance is 2.7%.
Conclusion: Investors Adopt a Cautious Approach During the Budget Week
Despite daily turnovers and volumes during the week depicting a mild recovery WoW, overall market sentiments remained dreary, possibly due to investors adopting a wait and see approach prior to the presentation of the 2014 budget and thereafter taking time to weigh the pros and cons of the 2014 budget.
With the unveiling of the “Budget 2014”, many new regulations and policies were introduced that would most likely bring about novel expectations and approaches on the corporate array. As opposed to the 2013 fiscal agenda, higher taxes via import duty, Cess, NBT, and VAT were introduced to increase the tax base and improve the government’s revenue. This is likely to impact sectors such as Banking and Finance, Beverage Food and Tobacco, Automobile, Land and Property, Chemical and Pharmaceuticals, Healthcare. Telecommunication
However, high Cess on imported food and related items and construction related products would immensely encourage local manufacturers involved in producing import substituting food manufacturing and manufacturers of tiles, cement, cables, aluminum, bath/sanitary ware etc. In addition, sectors such as Diversified, Plantations, Agriculture, Trading, Hotels and Travels etc. are likely to witness neutralized or mixed effects on the businesses.
Moreover, it is also worthy to keep track on foreign investor perception and reactions on the above fiscal proposals introduced as foreign participation so far has played a pivotal role in the local equity market, especially in sectors such as Banking and Finance, Diversified, Beverage, Food and Tobacco, Telecommunication etc. Thereby, the expectation of a possible slowdown in these sectors could result in reduction in exposure on the above segments in favour of sectors that are likely to outperform.
However, on the positive side, in order to encourage new listings, improve market liquidity and improve market activity levels, the government has extended the time frame to list by a further three years to obtain a 50% tax exemption for new listings with a minimum of 20% public shareholding and who pay a 28% corporate tax.
To read the entire report -http://research.srilankaequity.com/t855-22-11-2013-weekly-review-asia-wealth-management-co-ltd#973