Stocks gain as IMF loan deal boosts investor confidence

The much-awaited IMF loan reached a staff level agreement after four months of discussions on Monday with approval from the Executive board pending on Friday 24. With hopes of an economic revival in the country, investors sent the market higher driving up the indices to the highest close since June last year. The ASPI (All Share Price Index) closed the week at 2491.8 points improved by a notable 96.8 points or 4.0 percent, while the MPI (Milanka Price Index) was up by 121.8 points or 4.6 percent to close at 2793.1 points.

With several crossings taking place during the week, the blue-chip JKH stood the most contributed towards week's turnover. JKH was the highest contributor on Tuesday, Wednesday and Friday with turnover totaling to Rs.882.2 million during the week, depicting 24 percent of weekly turnover. JKH share peaked at Rs.141.00 on Friday before closing 7.1 percent or Rs.9.25 gaining, WoW (Week on Week) at Rs.139.25 per share. Total trade volume of JKH amounted to 6.5 million during the week.

Speculative counter Lanka Cement (LCEM) continued to capture investor appetite, with counter contributing significantly towards weekly turnover this week. LCEM share price this week rose to a high of Rs.39.50 per share with the appreciation in share price amounting to a notable 33.9 percent, closing on Friday at Rs.37.50 per share. The counter contributed Rs.250.5 million towards weekly turnover, with 7.0 million shares being traded.

The third largest contributor towards market activity was Ceylinco Insurance (CINS) with a total contribution of Rs.233.1 million. The counter experienced gains during the week with its share price increasing 4.7 percent before closing at Rs.200.00 on Friday. A total volume of 1.2 million shares of CINS changed hands.

The telecom giant Dialog contributed Rs.183.7 million towards the weekly turnover with a volume of 35.0 million shares switching hands during the week. Dialog closed unchanged for the week, with the counter closing at Rs.5.25 per share on Friday, after trading at a high of Rs.5.50 and low of Rs.5.25 per share.

Activity levels were sizably up this week by 129.5 percent compared to last week with turnover totaling Rs.3.6 billion for the week. The average daily turnover stood at Rs.725.5 million, compared to Rs.316.8 million recorded during last week.

Foreign participation for the week was relatively high at 31.2 percent of total activity compared to 24.9 percent posted last week. Foreign purchases added up to Rs.1.2 billion and the foreign sales totalled to Rs.1.0 billion during the week showing increases of 185.1 percent and 188.9 percent respectively. The foreigners were net buyers for the week amounting to Rs.201.1 million.

Among the most traded stocks during this week were Dialog, Lanka Cement, JKH, Overseas Realty and Piramal Glass.

Point of View Sentiment to remain bullish

Market posted healthy gains this week amidst strong investor sentiments following IMF's preliminary announcement regarding the approval of highly anticipated stand by loan facility to Sri Lanka. Week on Week (WoW) the ASPI gained 4.0 percent while the MPI rose 4.6 percent on improved activity levels led largely by retail investors.

We expect the bullish market sentiment to continue over the coming week as well on improved economic optimism following the approval of IMF facility. Furthermore, with concerns over the BoP and exchange rate gradually easing, there is high potential for the bourse to attract more foreign investments. The optimism over the post war economic scenario we believe is such that if sufficient buying power is put behind the market it could smoothly break-through to the next level. For the same to materialize we believe that institutional funds such as EPF, ETF and other public and private funds should enter the market in a more proactive manner alongside foreigners.

Considering the positive developments we advise the investors to collect fundamentally sound counters focusing especially on sectors with potential for growth in the post war economic era. Meanwhile the earnings season has started and in our view 2Q corporate earnings are likely to give mixed signals to the market providing trading and bargain hunting opportunities to inventors.

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