Investors welcome peace initiatives

REPORT: The market remained positive throughout the week, with attention keenly set on the peace talks held in Geneva. Indices recorded a modest upward movement during most part of the week but the momentum picked up on Friday as the peace talks ended on an optimistic note.

The ASPI (All Share Price Index) closed the week at 2226.3 points up by 59.8 points or 2.76% compared to the last week, while the MPI (Milanka Price Index) increased by a notable 105.7 points or 3.88% to close the week at 2830.6 points.

Telecom sector stocks dominated the market this week, amid both companies reporting notable earnings growth for FY2005. SLT became the highest traded stock for the week with 11.1 million shares exchanging hands.

However the share price showed little movement, closing the week at Rs.19 per share compared to last week's close of Rs.18.75 per share.

Contribution towards weekly turnover stood at Rs.205.7 million. Meanwhile 9.5 million of Dialog shares traded this week, with its share price appreciating by 4.1% Week on Week to close at Rs.19 per share.

The counter contributed Rs.178.6 million towards turnover, trading between the range of Rs.19.25 and Rs.18 per share for the week.

LIOC saw foreign selling this week, along with a notable 7.5 million shares traded during the week. The counter became the highest contributor towards weekly turnover contributing Rs.232.8 million.

Week on week little change was witnessed in the share price with the counter closing on Friday at Rs.31.25 per share. The counter traded within the range of Rs.32.25 and Rs. 30.75per share for the week.

Renewed interest was witnessed in The Finance Company stocks, after company reported a staggering 522.1% earnings growth for the third quarter. Approximately 2 million shares traded for the week, with the counter closing the week at Rs.59.50 per share.

The counter was the top gainer for the week, with its share price appreciating by a sizable 30.1% Week on Week. During the week the share traded at a high of Rs.63 and a low of Rs.47.50 per share, contributing Rs.125.7 million towards weekly turnover.

Interest was also witnessed towards CIC shares amid a company announcement declaring a 1 for 1 bonus and 3 for 2 Rights issue for both voting and non-voting shares this week.

A notable 0.2 million shares traded for the week, contributing Rs.90 million towards weekly turnover. The counter appreciated 6.6% compared to last week, closing on Friday at Rs. 300 per share.

The share traded within the range of Rs. 325 and Rs. 298 per share for the week. The non-voting share also witnessed a share price appreciation, increasing by 13.4% WoW to close at Rs.177.75 per share.

Speculative trading on Ceylon Leather stocks continued to this week with 5.3 million shares trading for the week. Contrary to last week, however the counter saw only a modest 4.9% movement in share price compared to last week 's closing price of Rs. 25.25 per share.

The counter closed the week at Rs.26.50 per share, contributing Rs.141.6 million towards weekly turnover. Total turnover for the week stood at Rs. 2.4 billion showing a moderate drop of 11.6% compared to last week.

Meanwhile the average daily turnover stood at Rs. 485.1 million compared to Rs.548.5 million posted during last week.

This week foreign investors remained net sellers amounting to Rs.335.1 million. Foreign sales increased by 18.6% to Rs.849.3 million for the week, mainly due to sales in SLT and LIOC shares.

On the other hand foreign purchases for the week showed a 10.4% dip compared to last week to stand at Rs.514.2 million. Among the highest traded stocks for the week were, SLT, Dialog, Overseas Realty, LIOC and Ceylon Leather.

Many counters still offer value amid strong growth potential

Investors welcomed the Government and the LTTE's commitment towards respecting and upholding the CFA, and their reconfirmation to fully cooperate with and respect the rulings of the Sri Lanka Monitoring Mission (SLMM).

Both indices recorded gains throughout the week even though sporadic pockets of profit taking halted any sharp appreciation in the market.

As pointed by us last week, the Geneva talks ended with no real concrete conclusion but reiterating the commitment towards strengthening the CFA and more importantly, lead towards taking the negotiations to the next round.

We believe that both parties should build trust and confidence through this exercise and ensure smoother implementation of the CFA ironing out the wave of violence that surged in the North East over the last two months.

Path for peace challenging but achievable

The LTTE said in the statement it would take measures to ensure there will be 'no acts of violence against the security forces and police.' The Government said it will 'ensure that no armed group or person other than Government security forces will carry arms or conduct armed operations.'

While the initial round of talks no doubt was a confidence booster for the investors, it is also important to take the process forward into the next level, where more burning issues would be confronted.

Bloomberg news quoted head of the Government delegation Nimal Siripala De Silva, saying "We are more confident the next round of discussions will be able to tackle the very delicate issues before us and are quite sure that the path for peace is challenging and peace is not a cheap commodity to be bought over the counter".

As long as the no war situation continues and the peace process move in the right direction while building confidence between the two parties, we believe that the investors would gradually flock to the market looking for bargains.

While the sentiment is unlikely to turn bullish in the short run, we expect the overall trend to still remain on a positive path.

Corporate earnings released during the week was mixed with both telecom companies posting mammoth growth while Lanka IOC (LIOC) posted losses amid a subsidy dispute with the Government.

LIOC wrote off the total subsidy due together with disallowable input VAT on subsidy, amounting to Rs. 7.86 billion, during the quarter ended December 31, 2005.

This resulted in a net loss of Rs.7.2 billion for the quarter and a Rs. 7.03 billion loss for the 9 months to December 31, 2005, reporting the first book loss since inception.

LIOC reported loss; more a book entry

We believe that this move is aimed at reporting a book loss and pushing the Government to pay the subsidy. This came after the Public Enterprises Reform Commission (PERC) alleged that the company is only entitled for the subsidy unless it reported a book loss.

Fundamentally LIOC still remain well poised to grow, with a strong asset base to support its operational capability.

We believe that the Government should fast resolve this issue, as it may not be a favourable signal to any new foreign investor who is looking at investing in Sri Lanka.

We believe that investors should not react adversely to this reported loss, as it is a mere accounting treatment that transferred the trade debtors to a write off against the income.

In fact this can be viewed from a positive angle, as now the Government may be compelled to pay the subsidy according to whichever the way the agreement is interpreted. (As the company has now recorded a book loss) Market is likely to continue its positive trend but with regular profit taking as different intervals.

With the already released earnings growth and projected surge in 2006, we believe that many counters still offer fundamental value.

We advise the investors to continue to look for bargains while shredding stocks that have already passed the fundamental value.

"This information has been compiled from sources that we believe to be reliable but we do not hold ourselves responsible for its completeness or accuracy. No matter published herein create any liability of any kind of HNB Stockbrokers (Private) Limited or its associates.