through active participation of investors amidst notable
improvement in retail sentiments.
The activities at the bourse witnessed a rebound
towards mid week with the indices paring the initial losses made during the
week to end the week in green. The ASI gained 30.26 points WoW to close at
5,765.94 points (0.5%), whilst the S&P SL20 Index gained 18.96 points WoW
to close at 3,312.53 points (0.6%). Indices benefited mainly on the back of the
gains made by Nestle Lanka (4.2% WoW), DFCC Bank (6.9% WoW), Trans
Asia Hotel (14.3% WoW), Carson Cumberbatch (2.3% WoW) and Union
Bank (32.4% WoW).
The bourse began the week with a
lethargic momentum, with activity levels remaining below average, however,
witnessed a rebound during mid week with strong buying spree being witnessed
across the board that continued to thrust the week to gain points. Whilst
institutional and foreign participation continued to be strongly rooted, it’s
noteworthy to mention the improvement in retail participation during the week.
As a result, majority of the small to mid cap counters witnessed substantial
gains during the week. It should be noted that this overall improved sentiment
was observed irrespective of the upcoming festive season, rising secondary
market yields and the CBSL data released during the week which indicated a
continuing weakness in exports (export dipped 18.2% YoY in January).
Moreover,
Banking sector counters continued to shine throughout the week with active
participation of investors across the board that primarily shouldered the
week’s turnover adding c. 68%. On the back of these developments, the week saw
an average turnover of LKR 925.4mn and an average volume of 22.7mn.
As
mentioned earlier, the week’s turnover level was largely driven by banking
sector, of which Nations Trust Bank played a prominent role witnessing
several crossings. The counter witnessed C. 8.2% of its issued quantity that
accounted over 18.9 mn shares being transferred to a foreign party at LKR54.0
on Thursday. Further, premier blue chip John Keells Holdings saw over
2.1 mn shares changing hands at prices between LKR 247.0 and LKR 248.0, whilst Sampath
Bank and Union Bank too witnessed crossings during the course of the
week. Subsequent to the large crossing, Nations Trust Bank spearheaded
the week’s turnover adding c. 31% followed by John Keells Holdings, Sampath
Bank and Union Bank. In addition, Union bank became the most
sought after counter where it reached its 52 week peak during the week.
Furthermore,
Nations Trust Bank, Union Bank, Free Lanka Capital Holdings, Central
Investment & Finance and John Keells Holdings topped the list in
terms of volume traded during the week.
The week saw foreign
purchases amounting to LKR 2,331.1 mn whilst foreign sales amounted to LKR
1,430.7mn. Market capitalisation stood at LKR 2,211.6bn, and the YTD
performance is 2.2%.
Market Lending Rates continue
drop, boosting interest on Colombo Bourse…
The
Average Weighted Prime Lending Rate of the banking sector decreased over 65
basis points in March reflecting the general moderation of private sector
credit demand during the first quarter of 2013. However, on the other hand,
Average Weighted Fixed Deposit Rate continued its upward trend and gained over
70 basis points in 1Q2013 indicating that drop in private credit demand is
lower than the slowdown in the rate of savings growth in the economy during the
period in concern. This is likely to readjust the interest spread of the
banking sector together with the level of private credit growth to suit the
altered position of market conditions in the economy. The fact that market
lending rates may continue to dip gradually despite the prevalence of
relatively high inflation indicates that the cause of price increases is a
supply side function rather than a persistent relative increase in effective
demand. Hence, commercial bank lending rates are unlikely to face upward thrust
despite the inflationary pressures prevailing in the economy.
Further,
on the other hand, the proposed electricity tariff revisions if enacted may
further strengthen the LKR against internationally traded currencies by
curtailing consumer demand for a broad base of imports. It would further mean
that commercial lending rates are likely to dip further towards the end of
3Q2013 and hence is likely to get realigned with the parameters set by the
current level of policy rates reduced back in December last year. On the back
of these developments we are of the view that the drop in market lending rates
would further assist the trading activity of Colombo Stock Exchange boosting
the overall market sentiment towards equity investments in general.
Furthermore, the current increase in the yields of
government securities may not in turn negatively impact the market interest
rates, given that government is likely to opt for more foreign borrowings
preventing the domestic treasury yields from rising further. The fact that the
steep drop in imports in January this year indicates that non-debt cash inflows
to government coffers would be narrowed during the year, it is in the interest
of the state authorities to prevent the domestic treasury yields from rising
further. On the other hand, the expected upward revision of electricity tariffs
would also reduce the demand for state borrowings and ease the upward pressure
on yields. Moreover, prevention of domestic treasury yields from increasing
further is vital in order to avoid foreign divestments from treasury securities
which may subject the economy to BoP issues. In this light, we believe that the
current trend in rising treasury yields may not hold back the expected gradual
fall in economy’s commercial lending rates.
Source: Asia Wealth Management Research
