Friday, February 10, 2012

Rs. 99 b in value lost at Bourse

Economic and equity woes fuelled by rising interest, exchange rates and impact from external shocks weaken locals; foreigners seize opportunities in attractively-priced blue chips

The Colombo stock market finished a shortened week, losing a staggering Rs. 99 billion in value, as local investors produced a kneejerk reaction to what they perceive as a worsening outlook for the economy and equities.

The over 2% drop in indices led to Rs. 46 billion in value wiped off on top of the Rs. 43 billion loss on Wednesday. Yesterday’s dip brought the total loss of value to Rs. 99 billion with market capitalisation further sinking below the Rs. 2 trillion mark to close the week at Rs. 1.94 trillion, as opposed to Rs. 2.04 trillion last week.

The year-to-date negative return of the Colombo Bourse expanded further to 12.47%, up from 8% as of last week. For this week the ASPI and MPI slipped 4.82% and 3.86% respectively. The ASI is now at the lowest level since 17 August 2010.

Analysts were quick to blame the deteriorating market on the rising interest and exchange rate regime as well as external shocks such as rising oil prices and tensions over Iran and their combined impact on Sri Lanka. Despite this view, continued net foreign inflow (a further Rs. 103.7 million yesterday bringing the total to near Rs. 300 million for the week) exposes the weak hearts of local investors who appear not to see what non-nationals evince.

NDB Stockbrokers however said the downturn for the seventh consecutive session was due to margin calls and panic selling.

“But foreign interest was continued to be seen in fundamental counters as pricing remains attractive,” it added.

Foreign participation was posted at 34.5% of the total market activity and at the end of the week foreign investors were the net buyers with a net foreign inflow of Rs. 285.6 million, according to Lanka Securities.

Arrenga Capital said the Bourse dipped sharply amidst heavy selling pressure among illiquid and speculative counters. “The negative correlation between rise in policy rates and stock market investment could be highlighted as a positive contributor to the loss in investor sentiment,” it said.

The illiquid heavyweights Bukit Darah, Carsons and Sri Lanka Telecom were the largest contributors to the decline in the benchmark index. Arrenga said low investor sentiment was evident especially in the retail segment as 132 counters recorded 52-week low prices with retail favourite speculative counters dominating the list.

SC Securities said top turnover generators were John Keells Holdings PLC (JKH), Commercial Bank of Ceylon PLC (COMB), National Development Bank PLC (NDB), Ceylon Tobacco Company PLC (CTC) and Brown & Company PLC (BRWN). The top five counters collectively generated around 43% of the total market turnover.

NDB said the Diversified sector became the highest contributor to the market turnover (due to John Keells Holdings) and the sector index declined by 1.50%. The John Keells share price decreased by Rs. 1.30 (0.79%) to close at Rs. 164.

The Bank, Finance and Insurance sector was the second highest contributor to the market turnover (due to Commercial Bank and National Development Bank) and the sector index declined by 2.56%. The share price of Commercial Bank decreased by Rs. 0.40 (0.39%) to close at Rs. 101 while the share price of National Development Bank gained Rs. 0.70 (0.57%) to close at Rs. 124.

Environmental Resources Investment (-3.7%), Citrus Leisure (+1.7%), Pan Asian Power (-3.0%) and PC House (-5.7%) were among the many others that recorded 52-week low prices.

Arrenga Capital said some new developments were registered this week with the central bank increasing policy rates, applying a ceiling on credit growth and allowing a flexible exchange rate which economists believe is a step in the right direction easing pressure on another balance of payments crisis.

“As the downward pressure pulls down the indices it is interesting to note that net foreign inflow remaining steady with foreigners accumulating selected counters. Net foreign inflow was recorded on six of the past seven market days. With the increase in policy rates we believe that there would be a negative impact pre-dominantly to the finance and leasing sector of the country due to the mismatch prevailing in their loan books,” Arrenga added.

DNH Financial said descending close to the 5,000 support level, it is easy to shy away from the market on the conviction that it may lose further ground due to the perceived lack of any relevant support despite highly encouraging 3Q2012/4Q2011 corporate results.

“While we don’t rule out the possibility of further decline in the short term on the back of retail selling in certain counters, we are nevertheless sufficiently convinced that the market should garner firm interest from select institutional and foreign investors who may adopt a cherry-picking approach focusing on counters that present strong and sustainable value in high growth and defensive sectors.

This should provide the necessary foundation for the market’s systematic rise over the medium to longer term. We continue to remain overweight on the Bourse,” DNH added.

CTC rises to number two

Surviving the market fall, Ceylon Tobacco Company (CTC) yesterday moved up further to be ranked as the second most valuable stock, after nudging itself up to number three on Wednesday.

Whilst many top tier stocks saw a dip in prices, CTC closed unchanged at Rs. 490 with 67,500 shares traded. Its rise to number two was on account of Bukit Darah suffering a Rs. 48.70 dip to close at Rs. 896.60 on thin volume of 2,300 shares.

Carson Cumberbatch, which CTC surpassed on Wednesday, closed down by Rs. 11.40 to Rs. 450, also on a volume of 1,800 shares. These stocks are traditionally illiquid in nature.

CTC’s market capitalisation yesterday stood at Rs. 91.78 billion, far behind number one JKH’s Rs. 137.7 billion. the premier blue chip saw its price dip by Rs. 1.30 to Rs. 163.60 though it was the favourite of foreigners with 1.2 million shares traded.

Bukit’s market capitalisation was Rs. 91.4 billion followed by Carson at Rs. 88.37 billion.

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