• Surge in trading activity at bourse driven by heightened interest in banking counters
• First Capital Holdings notes significant undervaluation in banking counters; expects price adjustments with debt restructuring
• Tourist and consumer goods sectors also witness increased activity amid positive economic outlook
• Falling interest rates and favourable sovereign debt restructuring news fuel fresh investments in equity markets

The Colombo bourse observed a sharp surge in trading activity last week characterised by high turnover, led largely by banking counters – part of an extended bull run in the Colombo Stock Exchange (CSE) since February.

Speaking to The Sunday Morning Business, First Capital Holdings Chief Research and Strategy Officer Dimantha Mathew revealed that the current bull run in the market was largely led by activity in banking counters. 

According to him, there is significant interest in banking counters as they are currently trading at discounted prices. He expects prices to adjust to book values with the conclusion of debt restructuring.

“Banking counters seem to be a great investment option to look at right now because they are heavily undervalued. There is a sort of trigger event expected with external debt restructuring, which is expected to be concluded within the next two months,” he stated. 

Elaborating further, Mathew said: “The banking counters are, on average, trading at half the book value.”

He further stated that with the increased interest in banking counters, neutral counters were also seeing an uptick in activity.

He further observed that tourist counters were seeing an uptrend in activity with the picking up of tourist arrivals and also pointed out that increasing consumer demand with the anticipated increase in disposable income as a consequence of the pay hikes had seen increased activity with regard to consumer goods companies.  

He pointed out that the bull run observed in the CSE for the past two months had largely been fuelled by falling interest rates, positive economic data, and the optimistic news in relation to the sovereign debt restructuring.

“With interest rates falling below 13%, we are seeing funds being transferred into equity markets. We are seeing a lot of fresh funds come into the equity markets these days looking for alternative investment opportunities,” he stated. 

The better-than-expected corporate earnings reported by the listed companies, spurring investor confidence, are also driving the current bullish trend.