Bourse eyes ASI surpassing 6500 points level as net inflows reach Rs. 13 b

The Colombo stock market is expecting to see the benchmark All Share Index (ASI) surpassing the 6,500 points level this week having reached the Rs. 13 billion mark in terms of net foreign inflows last week.

With healthy gains last week, the ASI’s year to date gain is almost 15% whilst blue chip S&P SL20 Index’ return is at 19%.

The Bourse is also eyeing for market capitalisation to cross the Rs. 2.5 trillion levels this week after having gained by Rs. 41 billion to close at Rs. 2,491 billion.

Commenting on the market’s trajectory, DNH Financial said: “With the ASPI’s break through the 6500 resistance level, we expect market momentum to accelerate next week on the back of renewed optimism for equities. This combined with the release of strong 4Q2013 corporate results for bluechip companies should enable the bourse to comfortably re-rate to higher levels even though intermittent bouts of profit taking could temporarily slow growth.”

 With the global risk appetite for equities having risen significantly over the past few months, DNH Financial expects foreign buying in Sri Lankan equities to rise, however limited to quality companies with sustainable attributes.

“Accordingly, we advise domestic investors to be appropriately positioned in sectors such as diversified, banking, hotels and food and beverage in order to benefit fully from the market’s anticipated re-rating. Stock selectivity will remain key and we continue to recommend a stock picking strategy mainly restricted to bluechip counters within the aforementioned sectors,” DNH added.

“The bourse gradually marched towards the next landmark point 6,500 with strong volume during the week and on Thursday it several times touched 6,500, closing the day retracing several points below,” Softlogic Stockbrokers said.

“We notify investor to take cautious approach at the moment as the market is reaching another important stage and hold on to already purchased growth counters. We are more biased towards banking sector counters eg; Sampath Bank, Nations Trust bank and Commercial Bank which currently trade at single digit PEs,” it added.

Acuity Stockbrokers said net foreign inflows to the bourse last week was Rs. 1.9 billion, a 19.96% increase from the previous week.

It said driven by active retail participation along with a large number block trades, the indices gained 108.15 points W-o-W. “Similar buoyant sentiment is likely to continue in the week ahead,” Acuity added.

Asia Wealth Management said the Colombo Bourse continued to rise in value with majority of the counters reaching their 52 week peak. “Majority of the large cap counters including banking and diversified counters encountered crossings during the week supported by institutional and foreign interest, whilst the counters witnessed substantial price gains. Further, retail play too was heavily observed on selected counters,” it said.

However Asia also noted that Standard Charted Bank expressed its concerns over the policy rate cut indicating that the 50bps cut in key policy rates exceeded their expectation of 25bps and was too aggressive considering the economic challenges and issues faced by the country. It further stated that it has revised the country’s projected GDP growth for 2013E to 6.5% from 6.7% due to the weak export performance in 1Q2013. The bank also raised concerns over the country’s ability to maintain a desirable level of inflation and it expects the inflation to rise during 4Q2013 due to the expected increase in demand from the private sector investment resulting from low interest rates.

“On this backdrop, we urge the investors to align their portfolios towards a medium to long term time horizon focusing on fundamentally sturdy counters which we believe will be less volatile even if the market is to face a correction due to short term profit taking,” Asia Wealth Management added.