Financial Times

Share trading operations boosting company profits

Capital gains made in trading shares on the Colombo stock market during last year's bull run have boosted the bottom line of many firms but brokers said profits made through this revenue stream were unlikely to be sustained this year

A number of listed companies have been reporting good results in financial year 2003 mainly by way of profits boosted through share trading and operations in the bond market, which became a new income source for them.

NDB (Pvt) Ltd. had Rs. 397 million in capital gains through its equity portfolio last year, which included the Mercantile Leasing Ltd sale, while Aitken Spence (Pvt) Ltd made Rs. 166 million by divestiture of Union Assurance Ltd. HNB made a profit of Rs. 252 million from its trading portfolio.

However, the trend is unlikely to continue this year as the bull run in the share market has receded and interest rates have ebbed considerably blocking the route to capital gains, stock brokers said.

Hasitha Premaratne, Head of Research, HNB Stockbrokers (Pvt) Ltd. told The Sunday Times FT that good news is all that is needed for a share market to go on another bull run.

"During the first five months of last year, only 6.8 percent of annual turnover was recorded while June, September and October had huge activity and a major bull run," Premaratne said.

Resumption of peace talks and a positive outcome of the election together with strong economic activity supported by donor funds is likely to result in another bull run, which in turn will create some opportunities for capital gains for companies who are into treasury operations, he added. Brokers said that some companies with excess money do have a tendency to trade in shares and that there are many unlisted firms who deal in government bonds and fixed income treasuries who declare substantial capital gains.

They said it was difficult to make accurate forecasts this year because of the uncertainty and the number of macro-economic factors affecting the market. But if the right market fundamentals are in place then many companies will take up treasury operations as an avenue for profit, they said.

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