The stock market in the recent past averaged around Rs 2 billion daily turnover compared to an average of around Rs 400 million to 500 million earlier. There is no secret that small investors have earned generally good profits which helped distribution of wealth. Readers would recall it is the small investors who burned their fingers and even losing entire savings during 2008 and 2009 period.
Recently a very small business newspaper had in its headline a critical comment on the steep rise of ERI and warrants, Touchwood, DPL and Blue Diamond.
If one analyzes the other stories too on the front page, it is obvious those behind the article feared a new company after having overtaken many socalled blueship companies would become the highest capitalized company in the stock market.
In a small note on the same page it highlights the face that due to price increase the asset value had risen by Rs 6.4 billion in three working days.
This had to be stopped. In the process they dragged other shares too which recorded appreciable price increases. So the acceptable impression has been given that the speculative rise has been due to an organized and collective effort to encourage regulatory authorities to move in.
Undue pressure
It further says the regulators have failed to detect this adding further pressure on the regulators.
The Securities Commission is now headed by a very honourable person who has risen to the highest in the Sri Lanka Administrative Service and supported by competent staff. Excerting undue pressure which is irregular to achieve ulterior motives is not acceptable.
It is very interesting to note that mention has been made that even the most gullible may have become richer, leaving the most sophisticated knowledgeable players on the sidelines kicking their heels.
It is true, that people who could not afford American education, dine in star hotels and membership of a Golf Club were making money.
They have been the scapegoats in the past losing sometimes their entire savings.
There is no doubt the Government would have been very happy regarding wider distribution of wealth in the stock market.
Those behind the said articles should encourage such distribution of wealth and should not think only they should own wealth forever.
This action has achieved their ulterior motive. Suddenly the companies providing margin facilitates have immediately reduced exposure to such companies and some in fact had given nil value.
Some brokering firms according to information have stopped financing purchase of such shares.
Chain reaction
This has created a chain reaction where resultant huge selling pressure had dramatically brought down the said shares so that the more sophisticated and educated who missed the chance earlier could move into specially ERI and Dankotuwa shares at a lower price which would give them huge profits later.
It is time to stop labelling some of the stocks penny, junk and speculative stocks which are in fact not so. There is a tendency to evaluate stocks only based on historical price earnings ratio and net assets value per share.
If so John Keells with a present price of Rs. 257 (6.8.10) is overvalued with a PE of Rs. 30.66 and net assets value of Rs. 80.44.
However it is a highly traded share with substantial foreign presence. The investors have also considered future prospects high liquidity, wide diversification, good financial base and good marketing locally and foreign.
The management is highly focused in marketing which ensured benefits to stockholders and this is not market manipulation as directors of some companies like to think which is a easy way out without caring whether the minority shareholders adequately benefit based on company potential.
It is important to note the four companies targeted make a useful contribution to the country by value addition.
Dankotuwa Porcelain PLC - This is a national assets the country should be proud of with its products matching the best in the world.
It has a Sri Lankan brand name internationally accepted. Even our tea despite being a leading exporter for 200 years has only ‘Dilmah’ as the internationally accepted brand. Our leading exporter garments are marketed under foreign brands and not a single under our brand.
In developed countries the citizens have huge pride in companies producing under local brands and even provide stiff resistance for any takeover by foreigners. It is no secret Indians have national pride in the company stocks such as Tata with their own brand names.
Slavish mentality
Despite national awakening in the recent past due to the efforts of the President such above companies are not given pride of place due o our slavish mentality of the upper class.
Those working in manufacturing sector today do not have social recognition and this is sad.
In a recent article the writer mentioned how the company successfully performed for a five year period without GSP and major reason for the financial crisis was the unsuitable Kiln purchased earlier under a different management resulting in a loss of Rs. 400 m during 2000.
It is natural after the approval at the EGM on 12.08.10 the company would be in a position for a substantial turnround during the financial year 2011/12 and as in the case of CLPL a price escalation cannot be prevented.
Environmental Resources Investment PLC - The main objective of the company is the purchase of under performing companies (sick companies) and restructure and rehabilitate sell later ensuring above 100 gain.
This is considered a very risky area by other companies due to the lack of expertise and management skills. The banks would generally attempt to rehabilitate only companies where funds have been provided earlier.
Apart from the Toronto Stock Market quoted company platinum the company would be owning three basic industries, CLPL, Former Pugoda Textile and Dankotuwa in addition to a few IT Companies.
The Ceylon Leather Products PLC - due to financial difficulties even transferred to the default list for the non-payment of statutory payment to CSE very soon would be a holding company which confirms the level of improvements made to CLPL.
The share of CLPL once traded at Rs 10 to 11 few years back had increased the price to Rs 275 recently recording a 2750 percent growth.
The company is involved in a most difficult task which contributes to economic development of the country and helping the Government in its economic drive.
Touchwood - It should be understood that the main objective of the company is the use of unproductive land for the planting of very valuable trees which would later add substantial value to the economy.
There has been some controversy for this system, and we should allow these matters to be resolved at the appropriate institutions.
Blue Diamond - The company unfortunately appeared to be a subsidiary of controversial Ceylinco Group and had not performed well.
Recently the company announced a rights issue to improve the financial position and the writer is unable to comment further on the matter.
According to a news item last Sunday the Supreme Court had given a judgement to go ahead with the rights issue.
The fact remains this is an industry which employed a large skilled workforce earlier. Since the industry is labour intensive it has advantages by way of low cost skilled labour and a company with necessary connection and financial resources could easily turn it around.
The readers would observe that above companies would play an important role in the economy and should not be labelled as penny stocks. In fact Dankotuwa is a national asset. It should be mentioned the word penny stock has been used in many Newspapers and by brokers without knowing the real meaning.
By definitions of the Securities Commission of the USA any share traded below US $ five is a penny share.
This may include even well performing small companies.
It would be interesting to note during the crisis even Bank of America fell into this category.
It is also interesting to note today AIG the biggest insurance company and Citi Group are still considered penny stocks.
Passing judgment
The said article in order to create fear among small investors/brokers went to the extent of passing judgment that some stock advisors would lose their licences. This reminds us of how a certain TV channel attempted to create fear among the public during the war against LTTE.
Some blame the 10 percent and introduced by the SEC for the collapse and it is the considered view of the writer that this decision is logical and correct under present circumstances.
When the stock market collapsed during 2008/09 with many investors losing their entire savings it is the newspaper publication of Lake House and Upali Group that highlighted the plight of small investors and recommended various remedial measures.
The writer in various articles requested Bluechip companies to help revive the stock market without any success.
They however needed minority share holders when they required funds under rights. It is the same forces that should be responsible for the collapse of the market.
The writer is of the opinion that some connected to the main Opposition parties may also be included in this group.
Steep price acceleration
If the market is heated which may be partly true some action should have been taken to reduce steep price acceleration of some high cap shares such as JKH, Sampath, Asian Hotels, Telecom, Dialog, Taj, Caltex, Richard Pieris and Galadari.
The price acceleration of Blue Diamond, Touchwood, DPL and Warrents do not impact on the indices significantly.
Readers would recall during 2008/09 period apart from small investors incurring huge losses stock brokering companies were on the brink of bankruptcy due to the daily turnover levels plummeting to Rs 60 million to Rs 70 million.
The new advisors that have sprung up recently now advise how the market should behave. They were in hiding and no action taken to revive the market then.
The suspension of trading of eight shares for one full day is unprecedented and created a dangerous trend due to no fault of the said companies. It would have been prudent to impose 10 percent limit immediately without resorting to the above action.
Similarly calling for a meeting of only six brokering houses is ill-advised and all the brokering companies should have been invited.
This included leading brokering houses in the country i.e. Capital Trust, Aquity and Bartleet and it is an undisputed fact Capital Trust is one company that made huge contributions for the revival of the stock market during 2008/09.
Market vibrant
We should remember the stock market today is very vibrant and remain so for few years due the leadership given by the President in eliminating the LTTE and launching a massive development drive.
Accordingly the country recovered from the war and the development will take our stock market to a unique place in the world.
Those managing quoted companies, stakeholders and stock brokering companies should unite setting aside petty differences giving fullest support for further development of the stock market, so that all would reap the benefit without damaging the market and small shareholders who had already incurred massive losses.
source - www.dailynews.lk
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