Investors should take positions in fundamentally strong stocks – ASec

The Colombo bourse last week saw signs of uncertainty in terms of direction but a top stock broker suggests investors have a golden opportunity to take positions in fundamentally strong stocks.

The Colombo bourse experienced a major headwind during the first two days of the week with a major correction of about 3%. Thereafter the market seemed to be searching for direction with investors adopting a cautious approach on the backdrop of uncertainty.

“However the strong activity levels during the week indicated continuing investor sentiments and we advice our investors to capitalise on the correction and take positions in fundamentally strong counters with sustainable growth potential,” Asia Securities said.

Further it expects investor participation to pick up and the market is expected to come back to its lively ways with two IPOs coming into play and September Quarter earnings release coming around the corner.

Asia said the Colombo bourse currently trades at a 4 quarter trailing PE of 25.8X.

“Along with our key buys our main stay recommendations remain; Diversified Hemas Holdings and Chemical Industries Colombo and despite the recent gains in hotel sector we still see upside on Aitken Spence Hotel Holdings, Eden Hotels and Keells Hotels,” the broker said.

Whilst Asia maintains its recommendations on the Banking sector stocks such as Sampath Bank and Nations Trust Bank, due to expected increase in disposable income resulting in a boost in consumption the Food and Beverage sector stocks such as Lion Breweries, Bairaha and Distilleries remain attractive. “Manufacturing stocks such as Lanka Wall Tiles and Tokyo Cement are also amongst our favourites. However we are in the process of revisiting our models and recommendations we maintain our buy stand on,” Asia added.

Acuity Stockbrokers said that market ebbed further with the ASPI losing 7% last week from its all time high recorded at the beginning of the month. A section of retail investors continue with selling in view of margin settlements and keeping in line with new directives effective January 2011.

“We expect that certain corporates will continue to book profits in view of the year end returns. Overall the bargain spree will continue on blue chips on the back of expected quarterly earnings. Further impetus may be added by clarifications on taxability of capital gains, positive trade directives and relaxations to selected sectors,” Acuity added.

Last week the ASPI witnessed a drastic dip of 206.7 points to close the week at 6,626.9 points (-3.0%) whilst Milanka Price Index (MPI) also dipped at an equal pace by 317.0 points to close at 7,149.3 points (-4.2%). Indices dipped mainly on the back of losses made Dialog Axiata (-3.9% WoW), John Keells Holdings (-3.3% WoW), Distilleries (-2.8% WoW), Commercial Bank (-5.4% WoW), Seylan Merchant Bank (-20.0% WoW) and Aitken Spence Hotels (-3.1% WoW).

Asia said sharp volatility was evident in the market throughout the week with the YTD market performance falling below 100%. During the second trading day of the week, the market witnessed one of the highest ever single day dip of 4.4% as investors involved in panic selling. The continuous selling pressure led the MPI to dip below 5% from its close on Tuesday paving way for a 30 minute market halt to be implemented during the early hours of trading on Wednesday. Consequent to the fluctuations, average daily turnover for the week stood at LKR4.6 bn.

Aitken Spence emerged as the top contributor for the week contributing circa 28.5% of the week’s turnover. The counter saw a stake of around 5% changing hands during the week with active institutional participation. Carson Cumberbatch along with its subsidiaries Ceylon Guardian and Bukit Darah saw renewed investor interest. Lanka Orix Leasing Company was also seen among the top traders for the week on the back of institutional participation. Institutional buying was evident in heavy weight John Keells Holdings and Ceylon Theatres where Ceylon Theatres gained nearly 11.7% WoW. Among the banking sector counters that saw investor interest were Hatton National Bank, Sampath Bank, DFCC and Seylan Bank (Non Voting) with the sectoral contribution for the week standing at a near 22.9% of weekly turnover. Among retailers’ favorite pick during the week were Hemas Holdings, Touchwood Investments, Ceylon Grain Elevators, and Seylan Merchant Bank.

Further, Chevron Lubricants made a third interim dividend announcement of LKR3.0 whilst United Motors announced a 01 for 01 subdivision of share during the week.

The week saw a net foreign outflow of LKR1, 990.4 mn where foreign purchases for the week amounted to LKR815.4 mn whilst foreign sales amounted to LKR2, 805.8 mn.