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Thursday, August 18, 2011

Wrong medicine?

By Indika Sakalasooriya

The indices of the Colombo Stock Exchange yesterday told a different story, quite different to the way many expected, as the indices started to come down after a brisk rally during the morning hours in the back drop of market regulator softening its stance on broker-provided credit. Analyzing the reasons for the market to comedown amidst positive news, a number of market analysts said most of the investors had already cashed in even before the directive from the SEC literally came out.

“The speculation that SEC will come up with a positive decision was there for sometime and as a result the market sentiment was positive during the last few days.

Those who were stuck used the opportunity and exited at a profit” one analyst said.

However according to some, yesterday’s downturn was a hint that all the stock brokers are not happy about the way the Securities and Exchange Commission has revived the earlier ruling to curb broker provided credit.

“The new rule will put small brokers to a situation where every time they want to provide margins to clients they will have to infuse capital into their own companies. I think this is not what most of the brokers asked from the SEC” an analyst said.

The President of the Colombo Stock Brokers Association, Sriyan Gurusinghe also partly shared this idea of small brokers who will be at a disadvantaged position, but added that the new directive will create a level playing field according to the capacities of the brokering firms.

“This decision to allow brokers to lend up to their net capital was taken to safeguard them from risky credit exposures. So, brokers should lend according to their capacity,” Gurusinghe said.

“I see this as a good start. Now the SEC is allowing brokers to provide credit subject to liquid assets, whereas earlier they did not on any grounds. So, we are hopeful that down the line we can look at ways and means of improving further” he said.

“I think about 60 percent of brokers have the liquid assets and they can make use of this kindly gesture by the SEC and I believe most of the brokering fraternity are happy about the directive” Gurusinghe added.

Fortis won’t increase stake: LHCL CEO

The CEO of Lanka Hospitals (LHCL) Lakith Peiris told Mirror Business that India’s Fortis is not planning to increase their stake in the hospital or the GOSL is not planning to divest stake. “This is the usual trading. Government will not reduce their stake in the hospital” Peiris said.

LHCL yesterday closed at an all time high of RS.108.3, after another all time high of Rs.89.50 the previous day.

About 4.5 million LHCL shares traded in the bourse contributing Rs.449 million to the day’s turnover while on Monday 8.6 million LHCL shares were traded.

Speculative morning

The brief rally that took place in the morning was led by the highly speculative shares including Colombo Land & Develpment (CLND), Pan Asia Power (PAP), Seylan Development PLC (CSD), Lanka Hospitals (LHCL) and East West Properties (EAST). Being the top contributor, CLND contributed Rs.1.4 billion to the day’s turnover.

23.8 million CLND shares traded during the day at an average price of Rs.58.90. The share opened at Rs.54 and high for the day was Rs.64.80.

For the day CLND share was up by Rs.15 or 30.8 percent while it closed at Rs.64.1. However it was surprising to see how CLND escaped the regulator’s 10 percent price band. CLND has 199.9 million shares in issue.

CLND made a net profit of Rs.73,000 during the three months to June 30 2011 compared to Rs.2.43 million in June 2010. Subsequently, the company had made a loss of Rs.5.9 million for the six months ended June 2011 compared to Rs.3.7 million a year ago.

Company’s revenue for the first six months of the year has also decreased from Rs.44.94 million in 2010 to Rs.43.12 million this year whilst the Earning per Share had reached negative 3 cents from positive 2 cents over year ago whilst Net Asset Value (NAV) per share had risen from Rs.16.28 to Rs.16.65 as result of asset value shooting up from Rs.2.7 billion to Rs.3.4 billion this year.

source - www.dailymirror.lk