Foreigners have sold out Rs.14 billion worth of stocks against purchases only amounting to Rs.8 billion from January 2011 to last Tuesday (15.02.11), creating a net foreign outflow of Rs.6 billion, the Colombo Stock Exchange (CSE) data shows. This has taken place in the face of everybody's expectation that this trend, that started in the latter part of 2009 and continued through out 2010, will cease in 2011.
According to Malik Cader, Director General of Securities and Exchange Commission of Sri Lanka, one of the key reasons for this situation has been the Colombo bourse having high Price to Earnings Ratios (P/Es) which are currently at around 27.
"In my opinion, this is the main reason for foreigners to exit thinking that the market is too expensive. But we are hopeful that the P/Es will come down to 19 to 20 levels by this March with the factoring of the company earnings" he said.
He also noted that at the moment the market is little overheated due to the large influx of money caused by the increasing absence of unregulated finance companies like Golden Key.
"A lot of money has come into the market with the collapse of companies like Golden Key and this has sort of aggravated the day-to-day market activities. But we are hopeful that things will calm down, with the coming of new Initial Public Offerings (IPOs) into the market" Cader said.
A few weeks back, SEC unfolding its capital market development plans for 2011-2013 said that they are expecting 50 to 60 new IPOs in 2011.
"We are sure that this target is achievable as there is no hindrance at our sight" Cader remarked.
When asked whether the present market activities, where retailers are very active has anything to do with the foreigners shying away, presumably from an over heated market, Director General said that the 10 percent price band the regulator has developed has helped in curbing a lot of irregularities that were happening in the market and it may not have any direct impact on the scenario in discussion.
In a new development which apparently showed the increased participation of retailers in the market activities, the bench mark index ASI recently surpassed the MPI which consists of 25 highly liquid shares weighted on market capitalization. Currently the ASI is in 7600 levels while the MPI is lagging in 7200 level.
According to an analyst who preferred anonymity, the steady surge of indices could imply the foreigners that the market is overheated and also overvalued.
"I think the foreigners are bit cautious here. However I see no material reason for them to refrain from coming into the market as there is no systemic risk prevailing in the likes of the re-emergence of the LTTE or something of the sort, that can hamper the macro-economic outset of the country" he said.
However the puzzle still remains as to why foreigners are exiting the market. Earlier it was said that the foreigners were making a killing out of selling their stocks which they held on to during the time of the war at super higher prices. According to analysts now it is high time to see a reversal in this trend for if not it can affect the market in a quite detrimental manner.
source - www.dailymirror.lk
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