Wednesday, February 15, 2012

Crisis Colombo!

■Stock market plunges further; Rs. 69 b in value wiped off

■One year loss of value is a staggering Rs. 766 b

 ■EPF and foreign buying saves Bourse after near 5% crash

■Rupee dips to all-time low of Rs. 120;

likely to settle down though triggering panic in import trade Crisis could be an understatement to describe the worst-ever twin shocks capital and forex markets faced yesterday, ringing fresh alarm bells in many circles, whilst some found the developments a relief since they are part of long-due correction.

The country’s former showpiece to the world, the Colombo stock market, suffered a near 5% crash yesterday before institutional investors, both local including EPF and foreign investors, stepped up their buying.

The former was on a buying spree, perhaps to boost the market from a worse crash, whilst the latter found values highly attractive. However, only the blue chips were sought after by both as the penny and speculative stocks fell further into the abyss.

Yesterday’s performance was starkly different (see table) to how the Colombo Bourse was enjoying exactly a year ago and exposed the varying tales of two Valentine’s Days between 2011 and 2012.

One figure tells it all. The market capitalisation or the combined value of the stocks in the Colombo Bourse had fallen by a staggering Rs. 766 billion during the past year. Last year’s Valentine’s Day marked the peak of the Colombo Bourse. Since then, the ASI has dipped by 2,800 points or 36%.

 If one were to disregard the 2011 Valentine’s Day high, then the 2012 year-to-date performance of the Colombo Bourse is no better as the negative return has risen to 17.5% in just one-and-a-half months.

Those who are adamant that the Colombo Bourse is still overvalued are happy that prices have dipped sharply and hinted at a further dip. However, the more objective investors and analysts were appalled as the market was behaving highly irrationally.

 Reuters said the ASI has dipped into the oversold region with the 14-day Relative Strength Index at 16.008 down from Monday’s 19.836, well below the lower neutral range of 30.

If last year required stocks to gain by 50% to 20% to be in league of top percentagewise gainers list, yesterday if a share had managed to gain by little over 2%, then it was a star.

Many blamed yesterday’s crash to what they perceived as ‘terrible’ developments on the foreign exchange markets, upward pressure on inflation and interest rates on account of unprecedented fuel price hike as well as the overall poor governance and accountability by the Government.

 Most brokers pinned the dip to margin calls and panic selling.

“A correction in speculative counters and negative market news are primary reasons for the decline in the indices,” argued Arrenga Capital.

“Panic selling by investors as a result of the fuel price hike which stoked inflationary fears together with concern over the depreciation of the rupee appeared to be the major reasons behind the fall,” was DNH Financial’s explanation whilst SC Securities noted “panic selling continued to dampen investor sentiment”.

The Bank, Finance and Insurance sector was the highest contributor to the market turnover (due to Commercial Bank and Sampath Bank) and the sector index declined by 5.17%. The share price of Commercial Bank decreased by Rs. 1 (1%) to close at Rs. 99.50 while the share price of Sampath Bank declined by Rs. 9.30 (5.19%) to close at Rs. 170.

Diversified sector became the second highest contributor to the market turnover (due to John Keells Holdings) and the sector index declined by 1.34%. The John Keells Holdings share price decreased by Rs. 0.70 (0.44%) to close at Rs. 159.50.

A high turnover of Rs. 2.4 billion was recorded yesterday supported by the crossings in the banking sector heavyweight, Commercial Bank. The counter trading at attractive valuations witnessed four crossings totalling 10.5 million shares at Rs. 100 each as it topped the turnover list contributing 55% to the total turnover.

JKH, the largest market cap company, continued to attract buying interest and with the decline in the market registered the second spot in the top turnover list.

Speculative counters led by Environmental Resources Investments continued to suffer heavy declines, dragging the market with it. The counter recorded a 52-week low of Rs. 15 as it dropped -25% to close at Rs. 15.5. The Warrants [W:0003 (-34.5%), W:0006 (-31.7%)] followed the main share into deep losses.

Other speculative counters Swarnamahal Financial Services (-4.3%), Browns Investments (-3.1%), Panasian Power (-16.7%), Citrus Leisure (-9.8%) were among counters that recorded 52-week low prices.

The rupee meanwhile hit an all time low of Rs. 120.10 against the US Dollar. Yesterday’s closing reflected a 5.4% depreciation as against its value of Rs. 113.90, after which point the Government allowed a near-free float.

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