Politics and big deals shape eventful week for Colombo Bourse

Monday, 7 April 2014 00:00 - - {{hitsCtrl.values.hits}}

By First Capital Equities Research The bourse continued to edge upwards during the week with the ASPI gaining 1.4% to close at 6055. Turnover jumped to Rs. 10.4 billion with parcels of John Keells Holdings and Citrus Leisure changing hands that accounted for 76% of the week’s total. Gainers outpaced losers with Shalimar, Bimputh Finance and Softlogic rising by 20.7%, 14.2% and 12.4% and offsetting declines in Ceylon Leather (W), Bansei Resorts and Ceylon Printers which fell by 50.0%, 49.3% and 28.2% respectively.

Meanwhile, Investors took to the sidelines ahead of what was expected to be an encouraging US employment report, while the euro nursed losses after the European Central Bank opened the door to more aggressive easing if needed. Ruling party sweeps regional polls. Was it an answer for the UNHRC resolution? The regional polls during the last Saturday (29) saw the ruling party (UPFA) record a landslide victory yet again. The polls were for the Southern and Western Provincial Councils. The ruling party’s voter base however had depleted by about 10% compared to the previous elections in 2009 which was just after the Government ended the 30 year long war. In the Southern Provincial Council the UPFA secured 59% in 2014 compared to 68% in 2009. Comparatively in the Western Provincial Council UPFA secured 53% in 2014 compared to 65% in 2009. During early last week the UNHRC passed a resolution on Sri Lanka with 23 countries voting for the resolution. The resolution requests the office of the High Commissioner for Human Rights to undertake a comprehensive independent investigation into alleged serious violations and abuses of human rights and related crimes by both parties in Sri Lanka, during the period covered by the LLRC. The ruling party urged the people to use the vote as a referendum to send a strong message to the UN that ordinary people of the country are against such an investigation. Despite the minor dip in the voter base the ruling party has managed to secure power of the two provincial councils with ease which in itself a victory for the Government to send to the world. Further the general elections and presidential elections are due in 2016. Last week’s election acts as a pre-cursor to the said elections in the ruling party’s ability to maintain power. However it’s important to know that it’s still 2 years away. Foreign inflow finally kicks in but week ends with a large outflow Foreign activity started off the year with heavy outflows with net foreign outflow for the 2014 as at 28 March standing at Rs. 7 billion with the bulk of it in JKH. The uncertainties regarding Sri Lanka ended with the completion of the UNHRC sessions and the elections. As a result foreigners have been showing more interest in Sri Lanka with the first four days of the current week recording net foreign inflows amounting to Rs. 1.4 billion. The majorities of the inflows have notably been in JKH. However, the trend didn’t last for long as on Friday a foreign fund sold down a stake in JKH resulting in a net foreign outflow of Rs. 4.1billion while the YTD net foreign flow surged to Rs. 9.7 billion. Bourse earnings outlook to improve amidst better macro-economic fundamentals The macroeconomic fundamentals of the Sri Lankan economy have continuously improved during the last six months with consecutive trade deficit contractions witnessed. The primary reason for the contractions has been the strong growth experienced in exports. Inflation remained under control with March point to point inflation registering 4.2% while interest rates have fallen to the lowest levels in three years. Amidst the improving business sentiment and the pickup in the economy we expect company earnings to improve during the year with cash rich companies focusing on organic or inorganic expansions.