Activity picks up ahead of Geneva talks

REPORT: Overall market trend retained its positive momentum for yet another week, even though indices recorded a modest decline during the latter part of the week amid profit taking. Week on Week both indices showed moderate movements.

The ASPI (All Share Price Index) rose by 18.9 points or 0.88%, to close the week at 2166.5 points. Contradicting though the MPI (Milanka Price Index) fell slightly by 10.5 points or 0.38% compared to last week, to close at 2724.9 points. The fall in Milanka came amid Dialog and other Milanka stocks like NDB showing a decline in prices during the week. Several large trades were seen taking place during this week. On Tuesday an 11.1% stake of CIC traded at a price of Rs. 255 per share.

The buying party was Paints and General Industries Ltd. with the selling party reportedly being high net worth investor Russi Captain. Approximately 1.3 million CIC shares traded during the week, with the share price appreciating sizably week on week (WoW) by 37.3%.to close at Rs. 281.50 per share. The counter traded at a high of Rs. 290 and a low of Rs. 200 per share, becoming the second highest contributor towards Turnover with Rs. 334.6 million. Apart from this Thursday witnessed 1.4 million of JKH shares trade through a crossing at a price of Rs. 145 per share.

For the week 1.8 million JKH shares traded, between the price range of Rs. 146 and Rs. 142 per share. The counter contributed Rs. 267.4 million towards weekly turnover with the share closing at Rs. 145 per share for the week.

Friday also witnessed a sizable transaction, with around 3 million of NDB shares trading. The counter was the highest contributor towards turnover for the week, contributing Rs. 617.3 million.

The share price of NDB observed an 8.6% WoW decline to close the week at Rs. 201 per share.

Interest on Ceylon Leather counter retained for yet another week with approximately 7 million shares trading for the week. A sizable 29.4% improvement was seen in the share price, while closing on Friday at Rs. 25.25 per share. The counter contributed Rs. 172.1 million towards weekly turnover trading within the range of Rs. 25.75 and Rs. 20 per share for the week.

Renewed interest was witnessed in Seylan Bank non voting counters amid the announcement of a 1for 1 rights issue. The counter saw approximately 2.4 million shares trading for the week with the major part of 1.9 million trading on Friday after the announcement of the rights issue. WoW the counter observed a 13.7% decline in share price to close the week at Rs. 15.75 per share. Voting share also fell by Rs. 3 after the announcement.

Both telecom stocks Dialog and SLT saw little movement in its share prices this week. The share price of SLT appreciated by a mere 1.3% WoW to close at Rs. 18.50 per share this week. Approximately 4.4 million SLT shares traded for the week, with the counter trading between a thin range of Rs. 18.75 and Rs. 18.25 per share. Dialog on the other hand, saw a marginal 1.3% dip WoW to close at Rs. 18.25 per share.

The counter traded at a high of Rs. 19 and a low of Rs. 18.25 per share for the week. Contribution towards turnover stood at Rs. 74.9 million.

Turnover showed a staggering 204.2% improvement this week to stand at Rs. 2.7 billion amid the above mentioned significant trades consisting of around 38% (Rs. 1.05 billion) of total turnover for the week. The increased retail participation also helped towards the boost in turnover with smaller caps regaining interest.

Average daily turnover for the week stood at Rs. 548.5 million compared to Rs. 180.3 million recorded during the last week. Foreign activity levels also saw a considerable improvement this week with both Foreign purchases and sales showing sizable increases for the week. Foreign purchases for the week stood at Rs. 571.7 million showing a significant 286.8% increase compared to last week, while foreign sales showed a thumping 310.4% rise to total Rs. 715.7 million from last week.

Foreign participation for the week stood at 23.5% of total activity showing a modest improvement from last week.

Ceylon Leather, SLT, Dialog, Distilleries and NDB were among the highest traded stocks for the week.

Key policy rates were held unchanged at February monetary review after the inflation showed a declining trend together with the deceleration in the private sector credit growth and decline in credit to public corporations. Reserve money, which was growing at 20% in end December 2004, has decelerated to 15.8% by end December 2005.

Broad money growth also declined marginally from 19.6% in end December 2004 to 19.1% by end December 2005. We project a decline in inflation over the next 2 months, thus do not envisage a rate hike during this period. Cumulative exports grew by 10.2% to US$6,345 million in 2005, while the cumulative imports increased by 10.8% during the same period.

The import growth can be mainly attributed to petroleum imports, which attributed to 19% of overall imports, increased by 36.9% to US$1,655 million in 2005. The overall imports excluding petroleum, increased only by 6.1% in 2005, compared to the growth of 16.4% recorded in 2004. The cumulative trade deficit expanded to US$ 2,519 million compared to US$ 2,243 million in 2004.

Despite the widened trade deficit, the overall balance of payment (BOP) recorded a surplus of US$ 501 million during 2005 benefiting from increase in private remittances (26%), the debt moratorium and the Central Bank's purchase of the net proceeds of foreign currency loans mobilized by the government. Consequently, the gross official international reserves increased from US$ 2,196 million in December 2004 to US$ 2,735 million in December 2005.

The Foreign Direct Investments (FDI) will play a decisive role in the BOP during 2006, in the absence of interest saving enjoyed during 2005 thanks to the debt moratorium. We believe that the BOP surplus may continue to stay positive, given the peace holds. Investor focus on peace talks The Geneva peace talks are likely to take the center stage during the coming week, where this may well be a confidence booster for investors.

With interest rates returning to some stability and global oil prices taking a breather, the overall market sentiment should get a further boost next week. Even if the talks end with no conclusion but with at least a lead up to take the negotiations to the next round, the market should retain its positive trend for yet another week.

This information has been compiled from sources that we believe to be reliable but we do nothold ourselves responsible for its completeness or accuracy.