Amidst a QoQ improvement in quarterly financials, activities remained low during week

The Benchmark index edged up marginally WoW after falling for 9 days consecutively, although S&P 20 on liquid shares closed with a WoW dip. The ASI gained 3.0 points WoW to close at 5,940.3 points (+0.1%), whilst the S&P SL20 Index lost 14.2 points WoW to close at 3,223.7 points (-0.4 %). ASI gained mainly on the back of gains made by John Keells Holdings (+5.2% WoW), Sri Lanka Telecom (+6.9% WoW), Lanka Orix Leasing (+6.3% WoW), Trans Asia Hotels  (9.8% WoW) and Lanka IOC (+6.5% WoW)

The Colombo bourse revived marginally on Wednesday subsequent to falling for 9 days consecutively. However, activities during the week were rather passive with low daily turnovers and volumes, whilst the week witnessed a crossing on each trading day except for Friday that that witnessed three crossings. Meanwhile, average daily turnover was LKR 556mn which was a WoW dip of 28.0%, whilst average daily volume was 30.1mn as against 42.4mn recorded in the previous week. Further, foreign participation also subdued over the week whilst remaining tilted towards the selling side.

Conglomerate John Keells Holdings emerged with the highest turnover for the week recording a contribution of c.LKR 434.3mn representing approximately 20.0% of the week’s cumulative turnover tally. The counter witnessed three crossings over the week where c.455k shares hands at LKR 209.0 and LKR 210.0. Commercial Bank which recorded the second highest turnover for the witnessed few block trades on the normal board with the support of few institutional and high net worth individuals. In addition, few other counters that witnessed crossings during the week were Distilleries Company of Sri Lanka where c.287k shares changed hands at LKR 205.0, Lanka IOC with 500k shares changing hands at LKR 40.0, Tokyo Cement voting with 1.5mn shares at LKR 35.0 and 1.0mn Tokyo Cement non-voting shares at LKR 29.0.

Meanwhile, PC House, Amana Bank, PCH Holdings and Expo Lanka were amongst the counters that recorded the highest number of share volumes during the week with the support of retail and high net worth buying.

The week saw foreign purchases amounting to LKR 588.5mn whilst foreign sales amounted to LKR 748.1mn. Market capitalisation stood at LKR 2,480.8bn and the YTD performance is 0.5%.

Conclusion: Emotions largely driving the market movement

The Colombo Bourse which continued its downward trend during the first two days of the week driven by the negative investor sentiment took an about turn on Wednesday and continued its rally on Friday. Further, the ASI which was dragged down into the negative territory on Monday, returned to the positive territory subsequent to the strong rebound witnessed during the last two trading days of the week backed by the positive sentiment portrayed by the investors.

During the week several Banks released their 4Q2013 results and as observed with other company results, the sector also witnessed an improvement in earnings cf. the previous quarters demonstrating its resilience. The overall slowdown in the 2013 full year banking sector earnings cf. the performance in 2012, largely reflects the adverse macro conditions that prevailed during the period such as, slowdown in credit growth, fairly sticky market lending rates, moderation of economic growth and deterioration of asset quality. However, we expect an overall improvement in the banking sector performance in 2014, driven by the expansionary monetary policy
adopted by the CBSL, continuous drop in market lending rates, improvement in external trade and overall improvement in the global economic growth prospects.

Further, we believe that the banking sector stocks could continue to draw investor attention during 2014 as the CBSL spearheads a consolidation process within the industry to transform into a more vibrant sector to help assist the country to achieve its USD100bn GDP target.

Whilst upswings and downswings are part and parcel of a stock market, myopic behaviour driven by emotions could result in investors taking irrational investment decisions that could lead to losses and opportunities lost. As such, we continue to advise investors to focus on fundamental factors such as potential growth prospects, margin expansion, attractive valuations, etc in picking stocks rather than being entirely driven by herd mentality and emotions, whilst align their portfolios to a relatively longer time horizon to benefit from the growth prospects of the bourse and the country.
Source: Asia Securities Research