Monday, 10 March 2014 00:00
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By First Capital EquitiesRising market turnover levels indicate increasing investor interest
Although 2014 took off on a positive note with market turnover levels rising by 41% on the back of robust corporate results emanating from improved margins (both on the operating and net level) and a rise in net foreign inflows, subsequent foreign selling in blue chip counters (which we believe were profitable exits), resulted in a 23% decline in turnover levels during February. However with our expectation of stronger EPS growth, continued soft interest rates and renewed investor sentiment, we expect the confluence of these factors to result in the bourse edging upwards over the next several weeks.
Global re-allocations will provide market impetus
With foreign inflows being recorded for three consecutive days of the week, we believe that this may be the beginning of a more regular flow of foreign capital into the bourse which in turn could have a strong positive impetus on market direction over the next few weeks. While frontier markets have continued to rise this year after having recorded double digit growth in 2013, we believe that Sri Lanka is also likely to benefit from increased flows into the region which should have a knock-on effect on market liquidity levels as well. Consequently, we advise investors to cherry-pick counters that are expected report sustainable top line growth going forward and are cash generative.
A dynamic investment approach may yield the most optimum results
We believe that in order to generate the most ‘optimum’ gains considering the current market conditions, we recommend an investment approach combining bluechip fundamental stocks with quality momentum stocks that are likely to report both robust EPS growth and healthy volatility. This ‘mixed bag’ approach we believe will allow investors to create a portfolio of stocks which should maximise returns both on the upside and the downside.
