Monday, July 30, 2012

Results Update -Jun 2012 -30 07 2012

source - CAL Research

Weekly foreign holding update - 27 07 2012

source - CAL Research

Market snapshot -30 07 2012

source - CAL Research

Foreign comeback, a green light for local investors’

Thanks to the economic reforms, foreigners are again active in Sri Lankan stocks, Softlogic Stockbrokers said.

 "The oil exploration activities and stabilization of LKR with successful USD1 bn bond issue and the IMF final trance confirmation, all reactivated the dormant overseas fund managers with cash being pulled out from the European and other market sharing the crisis combat. We believe the foreigners are making use of the valuation gap of Sri Lankan equity now trading at an attractive 10.4X," it said.

"Net Buying of foreigners is a powerful incentive for strong reactivation of local investors! It is rational to imitate the offshore investors’ trading now. It seems that the waiting for the market bottom by the foreigners is over. The foreign return would definitely strengthen the confidence level of the local players."

Year-to-date, the bourse has seen a net foreign inflow of Rs. 24.2 billion.

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Foreign inflows into bourse sees significant improvement

Foreign inflow into the Colombo Stock Exchange witnessed a significant improvement in the past week of activity, with a consistent net inflow being achieved in the entire week. Foreign purchases totaled Rs.689m while the net inflow for the week stood at Rs.579m. On some days in the week the net inflow recorded a high percentage of over 50% of total turnover.

 The two major indices of the Colombo Stock Exchange were looking up by the end of the week due to a surge in prices on Friday. The ASPI registered a gain of 44.87 points to close at 4933.09 while the Milanka Index too increased by 44.97 points to close at 4298.17. On news of good earnings results, John Keells Holdings boosted investor confidence helping its share price to increase to Rs. 184.00 from the previous day’s close of Rs.177.90. The group posted a net profit attributable to shareholders of Rs.1.6b for 1Q ending 30th June 2012 versus Rs.1.2b for the corresponding period in the prior year, up 34%.

The turnover achieved on Friday in the past week was Rs.425.7m and the high turnover could be attributed to transactions in the shares of Odel. Its shares which were fetching prices at Rs.18.00 levels prior to the announcement of the purchase of a 41.8% stake in the company by Parkson Retail Asia for Rs.1.4 billion, shot up to Rs.26.90 on Thursday. Nearly 2.14m shares in Odel changed hands at varying prices and closed at Rs.25.80. The company is expected to make a mandatory offer at Rs.23.50 and is also expected to make a rights issue of 1:1 at Rs.20.00 in order to raise an additional sum of Rs.2.9 billion for further expansion.

One of the much sought after stock with the bout of bullishness experienced on Friday was NDB Capital which fetched prices in the range of Rs.260.00 to Rs.320.00. While the shares of AVIVA NDB too witnessed a demand for its stock, which fetched prices in the range of Rs.175.00 to Rs.300.00.

Other heavily traded stocks during the week were Carsons at Rs.449.00 to Rs.462.00, Commercial Bank non voting at Rs.75.00 to Rs.77.00, DFCC at Rs.105.3 to Rs.110.50, Lafghs Gas non voting at Rs.12.90 to Rs.13.80 and HNB non voting at Rs.89.00 to Rs.91.50.

(Courtesy: Innovest Investments (Pvt) Ltd – an Investment Management Company licensed by the Securities & Exchange Commission of Sri Lanka)

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Friday, July 27, 2012

Sri Lanka stocks up 1.17 pct

July 27, 2012 (LBO) - Sri Lanka's stocks closed 1.17 percent Friday, Aviva NDB Insurance gaining on take-over speculation, while the rupee weakened in intra-day trading brokers and dealers said.
 The spot US dollar topped 132.0 rupees after the proceeds of a billion US dollar bond by passed the market and rupee liquidity was created instead. Market participants had earlier expected at least some of the dollars to be sold in the market.

 The Colombo All Share Price rose 56.90 points to 4,933.09 and the S&P 20 Index of large cap stocks rose 0.98 percent (26.91 points) to 2782.50

Turnover was 425 million rupees.

Positive sentiments over JKH's financial performance for the June quarter and Odel's acquisition by Parkson Retail Asia helped push the market up, brokers said.

The Spot US dollar closed 131.50/60 after state bank selling, dealers said.

The day's turnover of 425 million rupees was dominated by John Keells Holdings with 56 million rupees and Central Finance with 54 million rupees.

 AVIVA NDB Insurance PLC gained 93.20 rupees to close at 268.20 up 53.26 percent.

DFCC slipped 1.00 rupee to close at 109.00 rupees.

Dialog Axiata PLC, the country’s largest mobile phone operator closed flat at 6.10 rupees.

Aitken Spence Plc slipped 90 cents to 110.20 rupees. John Keells Holdings closed flat at 59.00 rupees.

Commercial Bank closed flat at 97.50 cents while Hatton National Bank fell 2.10 rupees to close at 135.00 down 1.53 percent.

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Asian retail giant to buy 42% stake of Odel for Rs. 1.4 b

* Founder Otara sheds control

* Deal with Singapore Bourse listed Parkson Retail Asia to trigger mandatory offer at Rs. 23.50 per share

* Rights issue of 1 for 1 raisingRs. 2.9 b to follow

Giving a boost to a dead stock market Odel Plc yesterday announced a significant change of ownership, with Asian retail major Parkson, agreeing to purchase a 41.82% stake in the company for Rs. 1.424 billion.

Odel said the transaction would be followed by a mandatory offer to minority shareholders and a 1 for 1 Rights Issue that will raise Rs 2.899 billion in capital for expansion of the 22-year-old fashion retail brand.

Parkson has entered into a Share Sale and Purchase Agreement with the controlling shareholders of Odel, the company’s founder and CEO Otara Gunewardene and her brothers Ajit and Ruchi Gunewardene, to acquire 60,625,000 shares of Odel, representing 27.88%, 13.6% and 0.34% respectively of the issued share capital of the company at Rs. 23.50 per share.

 Following the acquisition, Otara Gunewardene will retain a 27.88% stake in Odel PLC and will continue to be the company’s CEO, a spokesman for Odel disclosed.

 The Directors of Odel PLC have resolved, subject to regulatory and shareholder approval, to undertake a Rights Issue of One (1) ordinary share for every one (1) ordinary share held at a price of Rs. 20 per share after the completion of the mandatory offer.

 The total number of shares to be issued is 144,950,000 ordinary shares, doubling the number of shares in issue post rights to 289,900,000 ordinary shares. Parkson and Otara Gunewardene, Ajit Gunewardene and Ruchi Gunewardene have committed to take up their full entitlement of shares in the Rights Issue.

 The principal shareholders have also undertaken not to accept the mandatory offer that will be triggered by the transaction.

 The proceeds of the Rights Issue amounting to Rs. 2,899,000,000 (Rs 2.899 billion) are to be utilised in the company’s future investments in retail spaces.

 In a statement to media, Otara Gunewardene said: “The acquisition by Parkson Retail of a significant ownership in Odel marks a new chapter in the evolution of the company. Being part of a 22-year journey from a business I started from the boot of my car to becoming part of an international retail company is a great privilege. I am also happy to play a role in an infusion of foreign direct investment to Sri Lanka, while raising capital for the company’s growth.”

 “For our customers, employees and shareholders, this development represents exciting new prospects as the Odel brand will have more opportunities to maximise its potential and together with Parkson to explore new avenues to add value to the company.”

Listed on the Main Board of the Singapore Exchange in November 2011, Parkson Retail Asia Limited is a Southeast Asia-based department store operator with an extensive network of 54 department stores – 38 in Malaysia, eight in Vietnam and eight in Indonesia – an aggregate of approximately 554,000 square metres of retail space. Sales in the last financial year topped S$ 851.6 million, while profit before tax was S$ 51.6 million.

 The Parkson Retail Group Ltd., listed on the Hong Kong Stock Exchange, operates another 46 owned and six managed stores covering 31 major cities in China with an aggregate of 267,000 square meters of retail space.

 Acknowledged as Sri Lanka’s definitive upmarket fashion retail brand, Odel commenced operations with a single store at Dickman’s Road in 1990 and has grown to 15 stores, including the flagship department store at Alexandra Place and two new-concept ‘Luv SL’ stores. The company posted sales of Rs. 3.8 billion and profit before tax of Rs. 264 million for the 12 months ending 31 March 2012.

 In July 2010, Odel became the first fashion retail business to be listed on the Colombo Stock Exchange with an IPO of 16.7 million shares, an 11.52% stake in its equity.

 Though the announcement came after the market closed, Odel stock price gained by Rs. 2.80 to Rs. 25.80, whilst it hit an intra-day high of Rs. 26.90. Its 52-week high is Rs. 42.90 and the lowest was Rs. 16. Net asset per share is Rs. 12. It closed FY12 at Rs. 19.80.

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Bourse edges down but retail activity evident

The Colombo bourse edged down yesterday with all three indices down on a turnover of Rs.266.6 million, up from the previous day’s Rs.257.7 million, with 102 losers outpacing 92 gainers while 49 counters closed flat.

The All Share Price Index was down 7.69 points (0.16%), the Milanka down 10.13 points (0.24%) and S&P down 5.02 points (0.23%) with retail interest evident in counters including Odel which announced that a regional retailer was acquiring a stake of the company (see accompanying story), Panasian Power and HVA.

Odel which closed Rs.3.50 up at Rs.26.50 on over 2.1 million shares traded between Rs.22 and Rs.26.90 had been demonstrating both quantity and price gain during the past few days on rumours of the arrangement announced after trading closed yesterday.

Odel was the day’s top turnover generator contributing Rs.52.7 million to business volume followed by Distilleries which closed Rs.1.20 down at Rs.120 on slightly over 0.2 million shares done between Rs.120 and Rs.122 generating a turnover of Rs.26 million.

Carson’s closed flat at Rs.450 on 51,381 shares done during the day with brokers saying that there is a buying demand for the stock although prices had moved down from Rs.465 to Rs.450.

Apart from Odel, retailers were active in Panasian Power closing flat at Rs.2.40 on 9 million shares done between Rs.2.40 and Rs.2.50 generating a turnover of Rs.21.7 million shares and HVA down 30 cents to Rs.13.20 on nearly 0.8 million shares done between Rs.13 and Rs.13.50.

Among stocks demonstrating volume among the most traded counters were Swarnamahal down 10 cents to Rs.6.10 on nearly a million shares, Richard Pieris closing flat at Rs.6.90 on nearly 0.8 million shares, E-Chanelling closing flat at Rs.4.70 on over a million shares and Singer Finance where a rights issue is pending at Rs.11 closing 10 cents up at Rs.111.40 on over 0.4 million shares.

Swadeshi Industrial Works announced a final dividend of Re.1 per share after shareholder approval at a Sept. 14 AGM with the share trading XD from Sept. 17 and with payment on Aug. 25.

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Good start by JKH in “challenging” FY13

1Q pre-tax profit up 42% to Rs. 2.4 b; bottom line higher by 34% to Rs. 1.6 b; revenue improves by 26% to Rs. 20 b

Premier blue chip John Keells Holdings (JKH) has made a good start in the new financial year 2012/13 with turnover and profits up but its Chairman Susantha Ratnayake has cautioned challenging times are ahead.

JKH Group’s profit before tax at Rs. 2.40 billion in first quarter ended on 30 June 2012 was an increase of 42% above the Rs. 1.68 billion in the corresponding period in the previous year, while the profit attributable to equity holders for the quarter at Rs. 1.66 billion reflects an increase of 34% over the Rs. 1.24 billion in the same period in the previous year.

 The revenue at Rs. 20.01 billion in the first quarter of the financial year 2012/13 was 26% above the Rs. 15.88 billion recorded in the corresponding period in the previous year.

 The Company PBT of Rs. 2.24 billion for the quarter was significantly above the Rs. 1.02 billion recorded in the corresponding period in the previous year.

“Although the performance of the Group in the first quarter is encouraging, its sustenance in the immediate future will be challenging as the increased input costs emanating mainly from the impact of the depreciation of the rupee, higher duties and tariffs on imported items and the increase in fuel and electricity tariffs begin to take effect. A variety of steps, and measures, have been taken to mitigate these impacts,” JKH Chief Ratnayake said in his review accompanying interim results.

 The financial statements for the quarter ended 30 June 2012 have been prepared and presented in accordance with Sri Lanka Accounting Standards (SLFRS/LKAS) which have materially converged with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 This interim report is JKH’s first published under the new IFRS guidelines and the previous year’s financials have been restated for comparative purposes. The report also covers the key policy changes as required for first time adoption. The effect of the transition from SLASs to SLFRSs has also been presented in the reconciliation statements and accompanying notes to the reconciliation.

 Following are excerpts from JKH Chairman Ratnayake’s review accompanying the interim results:
 Transportation: The Transportation industry group PBT of Rs. 957 million was an increase of 33% over the first quarter of the financial year 2011/12 [2011/12 Q1: Rs. 718 million]. The increase in profitability was primarily driven by the bunkering business. The Group signed a share sale agreement with ‘Norbert Dentressangle S.A’ to divest a share of its freight forwarding businesses in India and Sri Lanka as a part of the continuous portfolio review of the Group. In May 2012, South Asia Gateway Terminals installed and commissioned two new ‘Ship to Shore’ cranes.

 Leisure: The Leisure industry group PBT of Rs. 648 million was an increase of 73% over the first quarter of 2011/12 [2011/12 Q1: Rs. 374 million]. The enhanced PBT of the Leisure group was primarily driven by the performance of the City Hotels and Maldivian Resorts sectors. The performance of the City Hotels sector was strong with both Cinnamon Grand and Cinnamon Lakeside witnessing continued growth. The occupancies of Sri Lankan Resorts were below expectations. However, this fall was compensated to a certain extent by higher average room rates.

We continue to reiterate the need for a concerted marketing campaign to create greater awareness of the destination to support the medium to long term sustainability of the industry. In the Maldivian Resorts, higher occupancies coupled with cost saving initiatives resulted in improved results.

 Property: The Property industry group PBT of Rs. 65 million was 24% below that recorded in the first quarter of 2011/12 [2011/12 Q1: Rs. 85 million]. The “OnThree20” project is on schedule with over 30% of the construction completed as at 30th June 2012. Construction of a mall in Kapuwatta, Ja-Ela commenced in June 2012 and it is expected to be completed, and ready for occupation, by December 2012.

 Consumer Foods and Retail: The Consumer Foods and Retail industry group PBT of Rs. 393 million was an increase of 92% over the first quarter of 2011/12 [2011/12 Q1: Rs. 204 million]. While the ice cream business recorded a growth in volumes compared to the corresponding period last year, the carbonated soft drinks business volumes were maintained in a market which showed little or no real growth. The processed meats business is close to finalising the acquisition of the production facility of D&W Foods Limited. Keells Food Products PLC has announced a 2 for 1 rights issue at Rs. 60 per share, with the intention of raising Rs. 1.02 billion which will be used for the D&W acquisition and in financing the increased working capital. During the quarter under review, the Retail business was profitable compared with a loss in the corresponding period last year, primarily as a result of higher footfalls. .

 Financial Services: The Financial Services industry group PBT of Rs. 257 million was a marginal increase of 5% over the first quarter of 2011/12 [2011/12 Q1: Rs. 245 million]. During the quarter, Nations Trust Bank achieved strong profit growth and continued to be the primary contributor to the Financial Services industry group. The PBT of the Insurance business saw steady growth during the quarter under review. The Stock Brokering business was significantly impacted as a result of the lower level of activity which prevailed at the Colombo Stock Exchange.

 Information Technology: The Information Technology Services industry group consolidated its position by achieving a PBT of Rs. 6 million over the first quarter of 2011/12 following two consecutive years of losses [2011/12 Q1: loss of Rs. 20 million]. The Office Automation business (JKOA) remained as the major contributor to the IT industry group profits, although profits did see a decline as compared to the corresponding period in the previous year. Sales were adversely affected due to the increased product cost. The Business Process Outsourcing business in India expanded its volumes through the acquisition of new customers and as a result achieved higher revenues as compared to the corresponding period of the previous year.

 Other including Plantation Services: Other, comprising of Plantation Services, John Keells Capital and the Corporate Centre, recorded a profit of Rs. 72 million for the quarter ended 30 June 2012 [2011/12 Q1: Rs. 78 million] The contribution from the Plantation Services business improved on account of higher average sales price for tea.

 In keeping with our triple bottom line approach, the Group has continued to integrate sustainability development in its pursuance of strategic and financial goals. The Group’s robust, internal quarterly sustainability reporting framework has enabled tracking of sustainability performance against key performance indicators and global benchmarks.

 The Group continues to measure and track its sustainability performance on a quarterly basis covering vital aspects such as the carbon footprint, water usage, waste management and employee health and safety. The Group’s carbon footprint for the first quarter amounted to 19,303 MT as against 17,967 MT in the previous year which translated into 0.96 MT per one million rupees of revenue as against 1.13 MT in the corresponding period in the previous year, reflecting a reduction of 15%.

 The Group’s water usage amounted to 407,893 cubic meters in the first quarter as against 465,035 cubic meters in the corresponding period of the previous year, with the total waste generated amounting to 1,533 MT as against 1,951 MT in the previous year.

 While the Group continues to benefit from innovative initiatives such as renewable energy lighting, co-generation, utilisation of waste heat of generators which were introduced in the previous financial year, the Group also launched a Group-wide e-waste management initiative this quarter to better manage the disposal of e-waste.

 The Group continued with its environmental conservation and community development projects such as recycling of plastic containers and rainwater harvesting, amongst others. I am pleased to state that a majority of these initiatives are spear-headed and developed by the people at JKH, further reaffirming the entrenchment of a culture of sustainable development across the Group.

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Thursday, July 26, 2012

Sri Lanka John Keells net up 34-pct

July 26, 2012 (LBO) - Sri Lanka's John Keells Holdings, which has interests in leisure, ports, consumer durables and financial serviced said net profits for the June quarter rose 34 percent to 1,658 million rupees.

 The group reported earnings of 1.95 rupees per share for the quarter. The stock closed at 177.90 up 90 cents. The bottomline included net financial income of 698 million rupees.

Revenues grew 26 percent to 20.1 billion rupees, cost of sales grew 22 percent to 15.4 billion rupees and gross profits grew 41 percent to 4.5 billion rupees.

"Although the performance of the Group in the first quarter is encouraging, its sustenance in the immediate future will be challenging…," chairman Susanthe Ratnayake told shareholders.

He said input costs were rising with a weaker rupee, higher duties and tariffs on imported items and higher fuel and electricity tariffs.

The group containers and logistics division brought 957 million rupees in pre-tax profits, leisure 648 million rupees.

"The performance of the City Hotels sector was strong with both Cinnamon Grand and Cinnamon Lakeside witnessing continued growth," Ratnayake said.

" The occupancies of Sri Lankan Resorts were below expectations. However, this fall was compensated to a certain extent by higher average room rates.

"We continue to reiterate the need for a concerted marketing campaign to create greater awareness of the destination to support the medium to long term sustainability of the industry.

"In the Maldivian Resorts, higher occupancies coupled with cost saving initiatives resulted in improved results."

 The property sector brought in 65 million rupees in pre-tax profits and retail brought 393 million rupees, financial services 257 million rupees and information technology 6 million rupees.

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Sri Lanka stocks close down 0.16 pct, rupee weaker

July 26, 2012 (LBO) - Sri Lanka's stocks fell 0.16 percent Thursday, with strong interest in ODEL which was taken over by a foreign department store at a price below today's market price, brokers said.

 The Colombo All Share Price Index fell 7.69 points to 4,876.19 and the S&P 20 Index of large cap stocks fell 0.23 percent (06.40 points) to 2755.59.

 Turnover was Rs. 266 million.

The spot US dollar closed around 131.25 rupees with 58 billion rupees of liquidity building up in money markets, which is negative for the rupee.

The day's turnover of 266 million rupees was dominated by Odel with 52.7 million rupees, which closed up 2.80 rupees at 25.80 rupees. The firm said by Parkson Retail Asia, an East Asian department store had bought a 41.8 percent stake at 23.50 rupees a share.

A mandatory offer for all shareholders is expected at that price. The stock had been moving up for several days from around 17 rupees on take-over speculation.

Distilleries contributed 26 million rupees to turnover and Carson Cumberbatch with 23 million rupees.

DFCC closed flat at 110.00 rupees.

Dialog Axiata PLC, the country’s largest mobile phone operator closed flat at 6.00 rupees.

Aitken Spence Plc closed 10 cents flat at 111.10 rupees, John Keells Holdings slipped 90 cents to 177.90 down 0.51 percent and Distilleries Company fell 1.20 rupees to close at 120.00 rupees.

 Commercial Bank slipped 20 cents to close at 97.50 rupees down 0.20 percent while Hatton National Bank fell 2.90 rupees to close at 137.10 down 2.07 percent.

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Sri Lanka PABC net down 24-pct

July 26, 2012 (LBO) - Sri Lanka's PABC Bank has reported profits of 159 million rupees in the June 2012 down 24 percent from a year earlier, amid a steep rise interest expenses, interim accounts showed.

 The firm reported earnings of 54 cents for the quarter. For the six months to June the bank reported earnings 1.21 rupees per share on profits of 356 million rupees which fell 12 percent from a year earlier.

 In the June quarter interest income rose 57 percent to 1.63 billion rupees but interest expenses rose at a faster 98 percent to 1,033 million rupees though the bank grew net interest income 16 percent to 601 million rupees.

PABC Bank's performing loans rose 18 percent to 39.0 billion rupees from December 2011.

Sri Lanka's Central Bank has set a limit of 18 percent for loan growth funded by rupees for this year.

Non-performing loans were flat at 2.6 billion rupees. The bank said its gross non-performing loans had improved to 3.3 percent in June 2012 from 4.52 percent a year earlier.

It provided 27 million for loan losses, against a provision reversal a year earlier.

Fee income rose 90 percent to 253 million rupees with foreign exchange income doubling 110 percent to 96 million rupees and unspecified other income rose 80 percent to 157 million rupees.

Non-interest expenses also rose 49 percent to 533 million rupees.

"The overhead increase is mainly due to the branch expansion and related activities that were undertaken during the last 18 months," PABC said in a statement.

"This strategic expansion drive assists the bank in establishing its presence in most parts of the country with 71 branches island wide."

It had opened 23 branches in 2011 and 7 in 2012.

The bank had grown deposits 17 percent to 41.4 billion rupees.

PABC's net assets edged up 2 percent to 3.69 billion rupees and gross assets grew 12 percent to 52.4 billion rupees.

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Sri Lanka fashion retailer to be bought by Parkson Retail

July 26, 2012 (LBO) - A 41.8 percent stake in Sri Lanka's ODEL, a fashion retailer is to be acquired by Parkson Retail Asia, a department store which has operations in Malaysia, Vietnam and Indonesia for 1.424 billion rupees.

 The East Asian firm has agreed to pay 23.50 rupees a share to buy the 60.6 million shares from founding siblings, Otara Gunewardene (27.8 percent) and her two brother Ajit (13.6 percent) and Ruchi (0.34 percent), the company said in a statement.

 The new buyer will make an offer to buy out existing shareholders at the same price. ODEL stock has move up in recent days from around 17 to above 23 rupees on speculation of a take-over.

Otara Gunewardene will retain a 27.8 percent stake and remain its chief executive.

"The acquisition by Parkson Retail of a significant ownership in ODEL marks a new chapter in the evolution of the company," she said in a statement.

"Being part of a 22-year journey from a business I started from the boot of my car to becoming part of an international retail company is a great privilege.

"I am also happy to play a role in an infusion of foreign direct investment to Sri Lanka, while raising capital for the company’s growth.”

"For our customers, employees and shareholders, this development represents exciting new prospects as the ODEL brand will have more opportunities to maximize its potential and together with Parkson to explore new avenues to add value to the company.”

The firm will also make a 1 for 1 rights issue that will raise 2.899 billion rupees for expansion.

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Market snapshot -25 07 2012

source - CAL Research

Results Update -Jun 2012 -25 05 2012

source - CAL Research

Dr. PB tells SEC, CSE to revive stock market with innovative ideas

Finance Ministry Secretary Dr. P.B. Jayasundera yesterday urged both the Securities and Exchange Commission (SEC), and the Colombo Stock Exchange (CSE) to come up with innovative new ideas to revive the stock market.

This was the key message during the near two-hour joint meeting between Dr. Jayasundera,  the Commissioners of the SEC and Board members of the CSE.

 Sources said the meeting, a direct follow up to President’s forum with capital market stakeholders on Friday, had discussed best means to revitalise the Colombo Bourse, which has been plagued by sustained bearish run and low activity.

 SEC’s Acting Director General H. Dissabandara and CSE Chairman Krishan Balendra had made presentations at the meeting outlining some of their proposals, after which there had been a discussion on same.

 Dr. Jayasundera had said that whilst what had been suggested was welcome, the Colombo Bourse needed more innovative new ideas for a robust rebound and sustainable development. The need for a revival via short, medium and long term executions had been emphasised.

 Broker credit had figured in the discussion as well. Given the status quo of the stock market, the importance of pragmatic regulation benefitting all as well as more practical and innovative proposals for revival had been suggested as well. Dr. Jayasundera had said a further meeting would be convened as part of a continuous dialogue between the Finance Ministry, SEC and CSE.

 The Colombo stock market is down 19% year-to-date with over Rs. 300 billion value wiped off on the back of an 8.5% negative return in 2011. In comparison to the Bourse’s all-time high of mid-February 2011, the loss of value is over Rs. 700 billion.

At Friday’s meeting with the President, brokers and high net worth investors listed a host of reasons for the market’s downfall and disenchantment on the part of investors, existing and prospective, whilst the SEC, CSE and a few other brokers gave their views as well.

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Bargain hunters help Bourse recover lost ground

Late but active play by bargain hunters yesterday saw the stock market recover lost ground in early trading helping indices to close on the up.

The ASPI gained 9.52 points and the MPI by 7.59 points whilst the S&P SL 20 Index gained 1.06 points. Turnover was Rs. 275.5 million, down from Rs. 520 million on Tuesday. Foreigners were net buyers though the amount was low at Rs. 22 million as opposed to Rs. 400 million during the previous two days.

“The Bourse extended its bearish momentum to initiate the day’s trading as the ASPI touched a low of 4,851.3 (down 23.1 points) during mid-day. Nevertheless, buying interest in selected heavy indices pushed indices back to the green putting a halt to three days of consecutive losses,” Softlogic Stockbrokers said.

 It said gains in Ceylon Tobacco (+1.5%), DFCC Bank (+4.5%) and Commercial Bank of Ceylon (+0.7%) weighed on the indices positively whilst Carsons Cumberbatch (-2.2%) and Asian Hotels & Properties (-3.9%) were among the largest negative contributors.

 Persisted interest in heavyweight John Keells Holdings led the counter to top the day’s turnover list (Rs.  30 million) as it saw several large trades being taken on board. JKH closed at Rs. 177 with a 0.8% dip.

 Strong buying interest emerged in DFCC Bank after the mid hours of trading, led the counter to creep up in the turnover list with a number of large trades including around 131,100 share block being handled in the market at Rs. 110 each. The counter trading at premium to its peer banks saw its price appreciating by 4.5% at its close of Rs. 110 with 220,450 shares traded in total.

 Interest stayed in Pan Asia Banking Corporation, whilst the non-voting share of Seylan Bank also encountered considerable buying interest as it advanced 3.6% to close at Rs. 25.50. Commercial Bank of Ceylon, among our key buys, continued to trade on its 52-week low as the counter saw several large trades on board.

 Odel having had a dormant play recently got reactivated amidst strong retail and high net worth participation. The counter gained 28.2% at it close of Rs. 23, after touching a high of Rs. 23.30. PCH Holdings continued with its story of heavy on board deals as a further one million share block was taken at Rs. 13 before it closed with a 9.5% gain at Rs. 13.60. HVA Foods continued to be sought after by retailers as it advanced by 7.9% to close at Rs. 13.50.

 Selling pressure emerged in index heavy Carsons Cumberbatch as the counter glided down to close at its low of Rs. 450 with a 2.2% dip. Further interest also extended in Free Lanka Capital as the counter continued to witness large trades as its value increased by 5.6% to close at Rs. 1.90. Interest also gathered in Piramal Glass trading at attractive valuations as it closed flat at Rs. 5.20.

 Meanwhile, the rupee slipped on importer demand for dollars, closing at 130.95/131.05 against the dollar, down from Tuesday’s close of 130.80/90.

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Wednesday, July 25, 2012

Pricing based on fundamentals make a comeback at CSE

* Investors to benefit, says stock exchange Chairman

By Ravi Ladduwahetty

Colombo Stock Exchange (CSE) Chairman Krishan Balendra believes the Colombo Stock Market has reached a point where stocks were priced attractively based on fundamentals and investors were positioned to benefit from this.

The CSE surged 125.3 percent in 2009 and 96 percent in 2010 before the Securities and Exchange Commission stepped in to cool-off the overheated exchange and began investigations into rampant market malpractices. The CSE underwent a correction and slumped to 8.5 percent last year. Year-to-date, the bourse has fallen near 20 percent.

"I feel the market has now reached a point where some stocks are attractively valued based on fundamentals. The economic outlook for Sri Lanka over the medium term is positive and the corporate sector is well positioned to benefit from this," Balendra told The Island Financial Review yesterday.

Substantiating on this claim, he said: "This is reflected in the increase in foreign interest in the stock market that we have seen in 2012 - foreigners are net buyers in 2012 to the value of  Rs.24 billion. In 2010 and 2011 foreign investors were net sellers in the market."

He said: "This year we have also seen the entry of a high profile sovereign wealth fund into the market (Khazanah of Malaysia) who have invested in excess of US$ 120 million. Apart from the foreign investors it is critical that we increase the local institutional, high net worth and retail participation. The CSE is continuing with its market development activities with a focus on educating potential investors outside Colombo. I am confident that the market will recover given the attractive valuations and the growth potential of the country and the corporate sector."

Explaining the present backdrop, he said: "The stock market is down about 20% this year.  Markets have ups and downs - after the big surge that we saw following the end of the war, it is only natural that the market should correct to some extent."

"Furthermore, at the tail end of the bull market that we had in 2010, there was excessive speculation in the market - after such periods of speculative activity, markets generally see a steep and lengthy downturn. This has been the experience in markets worldwide, including in developed markets. There are various other reasons for the downturn; interest rates have increased which has made equities less attractive, the global economic climate is weak and there has been uncertainty over the currency".

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Market snapshot -24 07 2012

source - CAL Research

Foreigners step up buying; net inflow tops Rs. 400 m in two days

‘What do foreigners see that locals don’t?’ was a question posed at a recent stock market forum, and proving its relevance, non-nationals continue to dominate the Colombo Bourse with net inflows topping Rs. 400 million in the past two days.

Yesterday net foreign buying amounted to Rs. 251 million, on the back of Rs. 178 million on Monday. Year to date figure is Rs. 24 billion. During the first two days foreigners had bought Rs. 520 million worth of shares.  Foreign participation was 38% of total market turnover yesterday whilst on Monday it was 33.5%. Foreigners were active on Commercial Bank non-voting shares which dominated turnover with Rs. 100 million, HNB non-voting, which saw a turnover of Rs. 65 million and Distilleries, which produced Rs. 48 million. On Monday foreign funds picked up JKH as well as Union Bank and Sampath Bank shares. A big parcel of 6% stake or 4.37 million shares of Dankotuwa Porcelain traded at Rs. 12.20 each in a deal worth Rs. 53 million with Japanese firm International Ceramic Inc., doing a transfer.

 Turnover yesterday was a healthy Rs. 520 million, above Monday’s Rs. 332 million, whilst indices closed marginally negative.

 Among other active blue chips were Carson Cumberbatch, Nestle and Ceylon Tobacco, whilst the market also saw some renewed interest in stocks such as Pan Asia Bank, Guardian Capital, Ascot Holdings, LAUGFS Gas non-voting, HVA Foods, Free Lanka Capital, Richard Peiris and Softlogic Holdings.

“The Bourse extended its sluggish momentum as it dipped below its intra-day support level by mid-day to touch a low of 4862.78 points (down by 19 points) in ASPI. A slight recovery was witnessed thereafter as the broader index closed largely flat whilst the MPI and the S&P SL20 index also followed a similar pattern. However four large off-board transactions fuelled the stagnant volume level and thereby the turnover within the initial hour followed by another off-market deal during mid-day,” Softlogic Stockbrokers said.

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Tuesday, July 24, 2012

Over 100 stocks trading below asset value

Confirming buying opportunities are being missed, over 100 stocks were trading below asset value and market multiples have fallen below 10 times, according to Softlogic Stockbrokers.

“We are bullish on the market over the medium to long term advising investors to accelerate accumulation so as to benefit from the expected bull run,” the broking firm said.

 DNH Financial urged investors to seek companies that are undervalued with growth drivers.

“While short term profits are difficult in trendless markets, we believe however that finding companies that are undervalued with growth drivers is likely to produce positive returns in the medium to longer term,” it said.

“Investors are advised to use the current lull in the market to review their portfolios in order to ensure that their allocations continue to reflect their risk appetite, investment goals and horizon while also using the price weakness in the market to cherry pick blue chip counters,” DNH Financial added.

Asia Wealth Management said stake holders including brokers, investors, regulators analysts and public at large, are waiting for a revival in the market.

“To date market is trading with a trailing PE of 11.28 x. Expectations were high at the beginning of each trading day anticipating that the market would bring up hope for investors. But why has it taken so long for these to materialise? In fact, these hopes were built around strong earnings in most of the counters, attractive dividend payments and high growth prospects in the economy,” Asia said.

 Noting that interest rates and inflation in the economy are rising whilst the world economy is also undergoing turmoil, Asia said these have not drastically reduced the attractiveness of the Sri Lankan equity market.

“This raises the question as to whether investors have lost confidence in the Bourse. The chain of incidents also proves this dilemma. We came across incidents where the market responded positively over the news when the President extended discussions with the broker community. However, historically, the enthusiasm created over these has faded after a few days once the investor is not fully contended with remedies,” Asia said.

“Therefore, to top these all, the slow moving market is due to lack of investor participation, and the dominant reasoning behind the lack of involvement is less confidence towards market and excelled uncertainty. Will investors ever regain their confidence? The answer to this is broader and each stakeholder has its own role to play. Investors should be involved in fair dealings, whilst regulators should bring in discipline and order. These would multiply the attractiveness of the Lankan equity market in the wake of its economic resurgence,” Asia Wealth Management said in its weekly research report.

 These positive comments are amidst Acuity Stockbrokers mid last week launching its equity market strategy saying Sri Lanka is leading the pack among frontier markets and there is great upside in the medium to long term.

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Stock market’s struggle persists

The bearish stock market’s struggle persisted yesterday despite expectations of a rebound in sentiments following the dialogue between capital market stakeholders and President Mahinda Rajapaksa on Friday.

The benchmark ASI closed six points down (0.13%) and MPI by over 23 points (0.5%) whilst S&P Sri Lanka 20 dipped by six points. Turnover was a modest Rs. 322 million though dominated by blue chips John Keells Holdings (Rs. 112 million on account of foreign buying with Captains on the selling side, and Carson Cumberbatch (Rs. 14 million  with EPF continuing to collect available quantities), whilst Central Finance (Rs. 77 million) saw a related party transfer between Perpetual Capital and Thurston Investments.

 Brokers said sentiments hadn’t recovered despite the Presidential forum, suggesting the market was awaiting some changes, though they didn’t want to be specific.

 Any progress will be known only when Treasury Secretary Dr. P.B. Jayasundera reconvenes stakeholders for a follow up discussion.

 Others said yesterday’s performance confirmed that there was no change in the confidence level in the market whilst it also reiterated the President’s forum was inconclusive except ending as a talk shop. “It may be too early to conclude, but judging by yesterday’s performance, the market failed to rebound,” they added.

 Some analysts even went to the extent of saying investors were waiting for the market to fall further before collecting quantities.

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Saturday, July 21, 2012

Rupee up on sovereign bond inflow hopes; Bourse down

The rupee strengthened more than 1% against the dollar on Friday due to expectations of further dollar inflows into Government bonds and from the sale of a $ 1 billion euro bond issue, dealers said.

Sri Lanka’s $ 1 billion, 10-year sovereign bond was priced at 5.875% after being oversubscribed more than 10 times.

“Since the oversubscribed sovereign bond issue, we see the rupee strengthening and the confidence coming in,” a dealer said asking not to be named.

 The rupee closed at 131.60/80 against the dollar, firmer than Thursday’s close of 133.00/10, dealers told Reuters.

 Stocks slipped on Friday despite President Mahinda Rajapaksa, also the Finance Minister, meeting with top officials of the Colombo Stock Exchange, Securities and Exchange Commission and brokerage firms to discuss an ailing market.

 The Colombo Stock Exchange’s main index edged down 0.06% or 2.89 points to 4,888.22.

 Treasury Secretary P.B. Jayasundera who attended the meeting told Reuters that there was discussion on need for governance and regulation predictability.

 Sri Lanka’s $ 13.80 billion stock market has fallen 19.5% since the start of the year on concerns over rising interest rates and a sharp depreciation in the rupee currency.

 The day’s turnover was Rs. 284.2 million ($ 2.14 million), well below this year’s daily average of Rs. 915.2 million.

 source -

Don’t come to me again

President tells errant stock traders
 President Mahinda Rajapaksa yesterday told representatives of the capital markets industry that he would no longer intervene and hold meetings with them and that any issue investors and brokers had with the regulator, the Securities and Exchange Commission (SEC), could be thrashed out with Treasury Secretary Dr. P. B. Jayasundera instead, informed sources said.

The President convened a meeting with officials from the SEC, Colombo Stock Exchange (CSE), broker firms and high net-worth investors yesterday (20), where one particular investor gave a fiery presentation on how the SEC was sabotaging the stock exchange.

This investor went on to allege that certain officials in the SEC and journalists were trying hard to bring down the stock exchange and discredit the government.

Sources said the meeting with the President was intended for a select few SEC-bashers, but a change of heart at the last moment saw representatives from all stakeholder firms participate.

Two speakers from the broker community speaking up at the meeting defended the SEC and said the market was not over regulated (see yesterday’s The Island Financial Review)

SEC Chairman Thilak Karunaratne had then defended the regulator’s stance, and sources said his forceful counter arguments surprised everybody.

"The meeting was intended to vilify the SEC and give those involved in market irregularities a free hand. But unlike last year’s meeting with the President, where the SEC lost its chairperson and Director General for fighting market malpractice, this time around the regulator and like minded stakeholders were able to stand their ground," a source said.

Treasury Secretary Dr. P. B. Jayasundera told the forum that the meeting was convened to find out how the next budget could assist in boosting the country’s capital market.

"As far as the next budget and capital market development was concerned, the meeting was unproductive, but certain investors and the regulator did let off some steam," a source said.

Influential investors had been lobbying for a regulation free capital market and a stop to investigations into market malpractices and the President caved in last year. But this time, President Mahinda Rajapaksa told the forum that he would no longer entertain such meetings and that industry disputes could be settled with Dr. Jayasundera instead.

The SEC is investigating rampant market malpractices at the Colombo Stock Exchange. Those being investigated are trying to play the nationalism card to win sympathy and support. One such investor who was being investigated last year sent us a letter accusing the SEC of being unpatriotic.

The stock exchange has fallen near 20 percent so far this year, and equities researchers say this is because high interest rates are driving away investors.

‘Market manipulators who brought dud stocks so as to manipulate the market and earn thumping gains were now saddled with this junk and trying their hardest to wriggle out of investigations into pumping and dumping, which was an offence,’ market analysts said.

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Friday, July 20, 2012

Acuity Stockbrokers says time for locals to invest as “Lion” is leading frontier markets

Acuity Stockbrokers Ltd. on Wednesday sent a strong message that it is time investors grabbed early opportunities to invest in equities based on attractive valuations as the “Lion” is leading frontier markets.

 Its latest research report on the Lankan economy and equity market was launched via a forum involving an expert panel and its clients.

“Despite room for risks, Sri Lanka’s investment case is compelling both comparatively and fundamentally. Sri Lanka’s broad institutional framework is stronger relative to frontier market peers; its correlation to global equities is lower than that of peers. At a macro-economic level, we see upside potential in the mid to long-term despite some short term pressure,” the Acuity Research's  strategy document said.

Acuity Stockbrokers Chairman Ray Abeywardena explaining the decision to launch the report and its timing told the Daily FT that “rather than being complacent or dejected over the dip in the market, we decided to take a proactive stand based on top research to drive home the point to investors that in the past there had been downturns but the market has recovered substantially thereafter.”

 “We have seen for several months how foreigners have invested owing to greater value in Colombo and our analysis establishes the fact that Sri Lanka is leading the pack among frontier markets. Via our research we are making a compelling case why locals too should seize the opportunity than missing out,” Abeywardena added.

 The panel included IMF Resident Representative in Sri Lanka and the Maldives Koshy Mathai who gave an overview on the performance of the economy and Frontier Research Ltd. Director Amal Sanderatne who traced how the Bourse was 12 years ago and those who invested had benefited on the upturn, as well as HNB Managing Director Rajendra Theagrajah and Expolanka Holdings Group CEO Haniff Yusuf.

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Stock market zeroes in on President’s meeting today

Impending discussion bolsters investor sentiment as Bourse value gains by Rs. 27 b; some link it to sovereign bond success

The Colombo Bourse yesterday staged a mini rally sentiment wise in anticipation of a positive meeting between President and Finance Minister Mahinda Rajapaksa and capital market stakeholders today.

 The market’s value rose by Rs. 27 billion as both the ASI and MPI saw a 1.5% rise after being depressed for several weeks.

Turnover improved to Rs. 663 million with blue chips Sampath Bank, JKH and DFCC Bank dominating.

 The percentage wise gainers list was dominated by speculative stocks, which saw their prices move up between 10 and 20%. However top three blue chips accounted for over 50% of the turnover.

 Heavyweights John Keells Holdings (+1.69%), Asian Hotels & Properties (+5.4%), NestlĂ© Lanka (+2.74%) and Ceylon Tobacco (+1.06%) weighed positively on the indices with speculative players also joining in the rally. The S&P SL20 index managed to secure its highest gain since introduction closing with a 27.5 point gain at 2,760.2 points, Softlogic Stockbrokers said.

 Several other brokers and analysts linked the rebound to the impending Presidential forum whilst others pinned it to the 10.5 times oversubscription of the $ 1 billion sovereign bond though the latter news was with the market on Wednesday. Some in the market remain wary about Presidential meeting as well.

 Nevertheless Reuters said Bourse jumped on hopes that the Government may be considering measures to boost the share market.

 “Any positive comments on the country’s macro-economic stability could boost investor confidence,” a stockbroker said on condition of anonymity to Reuters, which quoted President Rajapaksa’s Spokesman Bandula Jayasekara as saying the meeting is not “an intervention” but a discussion.

 NDB Stockbrokers said the double digit increase in indices was mainly owing to the “positive sentiments created on the back of the sovereign bond, trading relaxations introduced by the SEC” and the upcoming President’s forum.

 Asia Wealth partly attributed the rebound to investors expecting a positive outcome of the brokers meeting with the President whilst Lanka Securities said the market saw “renewed interest on popular retail investor counters amidst a meeting scheduled with the President and industry professionals in order to address issues pertaining to the faltering stock market”.

Softlogic Stockbrokers viewed the rebound as part of Bourse welcoming the conclusion of the country’s most successful bond issue to date coupled with the signs of easing up interest rates.

 When the President met brokers last year on 27 November, investors cheered the move even before its outcome. Whilst the meeting only started at 2 p.m. or 30 minutes before the market’s close, the ASI shot up by 4% to a two-year high with market value rising by Rs. 79 billion.

 It will be interesting to see how the market behaves today, with the Presidential forum scheduled for 11 a.m.

 As locals returned to the Bourse (the number of trades doubled between yesterday and Wednesday), foreign selling came in, resulting in a net outflow of Rs. 216 million though the year-to-date figure at Rs. 24 billion remains a record in recent years.

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Brokers commend SEC

With concerns mounting that today’s meeting between President Mahinda Rajapaksa and capital market stakeholders would put an end to much needed regulation and a stop to investigations into market malpractice, four stock broker firms have written to the beleaguered regulator commending its regulatory stance.

The stock exchange slump is being blamed on over regulation, particularly with regard to credit restrictions (which were relaxed to an extent earlier this month).

JB Securities Ltd, IIFL Securities Ceylon (Pvt) Ltd, CT Smith Stockbrokers (Pvt) Ltd and Somerville Stockbrokers (Pvt) Ltd have in a letter to the Securities and Exchange Commission of Sri Lanka (SEC), headed by Thilak Karunaratne, said, "Contrary to popular perception our understanding is that the SEC never barred brokers from giving credit thus the ongoing debate is incorrectly framed, the only issue that is at debate is the funding of credit extended by brokering firms."

The SEC adopted a slew of measures after ‘dud’ stocks, also known as ‘junk’ stocks were hyped up and rampant market malpractice was the order of the day. The Colombo Stock Exchange, which grew 125.3 percent in 2009 and 96 percent in 2010, underwent a correction and slumped to 8.5 percent last year. Year-to-date, the bourse has fallen 19.5 percent.

Interested parties believed to be under the SEC’s radar for market irregularities and broker firms suffering with high interest rates hitting them hard because they cannot offload their holding of dud stocks, are blaming the SEC for the current predicament of the stock exchange.

President Mahinda Rajapaksa intervened last year and these interested parties won the day resulting in the then SEC Director General Malik Cader being removed from his post and appointed as an advisor in the Treasury and the resignation of SEC Chairperson Ms. Indrani Sugathadasa. The duo had begun to take a tough stance on market irregularities and analysts say their exit was a huge blow to the credibility of the broker community.

The new Chairman of the SEC Thilak Karunaratne has continued to clamp down on market irregularities and this has understandably irked some who have since tried to blame the woes affecting the bourse on over regulation.

But JB Securities Ltd, IIFL Securities Ceylon (Pvt) Ltd, CT Smith Stockbrokers (Pvt) Ltd and Somerville Stockbrokers (Pvt) Ltd have botched these arguements.

Their letter to the SEC in full:

"We the undersigned would like to concur with the SEC’s recent directive issued on 16 July 2012. For brevity we outline below the reasons for our concurrence with the above.

Contrary to popular perception our understanding is that the SEC never barred brokers from giving credit thus the ongoing debate is incorrectly framed, the only issue that is at debate is the funding of credit extended by brokering firms.

The net capital computation formula before the 16th July directive was extremely accommodative to the current environment. It does not require haircutting based on impact cost (illiquid securities require a greater hair cut) and value at risk (volatility) when determining the collateral value. Thus the degree of credit that can be extended is much greater than if a best practice standard was in force. Further, the required minimum net capital is a mereRs 35 million from which a leverage of 3x is permissible.

Foremost in our minds is the steps that can be taken to reduce systemic risk – risk of collapse of an entire market as opposed to the risk associated with any individual entity, group or component of a system. In particular we are most concerned with contra party risk and the comingling risk of client credit balances, i.e. there is no delineation between client and contra creditors from all other creditors during bankruptcy.

In the normal course of business some clients maintain credit balances in their brokerage account. As per CSE rules client funds have to be segregated into a separate designated account. Although these funds are maintained in a segregated account there is no legal ring fencing of these balances thus in the event of a firm bankruptcy these client credit balances will be pooled with all other assets of the firm. In the event of such an occurrence there exists a strong possibility of a contagion risk to ALL other brokers where market participants will lose confidence in their stability.

The current CSE settlement system is based on bilateral settlement – broker A and broker B net off their positions, this is reflected on our balance sheets. Transfer of funds during settlement on T+3 is done on a consolidated net basis – a broker’s debits and credits against ALL other brokers are netted off and only the net amount is transferred. Although until recently the settlement system had not experienced a settlement failure, it is only a matter of time before we experience a major failure – this will result in a domino effect – broker A will default on B, B will default on C, etc. This is any market participant’s worst nightmare.

The market’s settlement cycle is T+3, thus in the absence of a delivery vs payment (DVP) system shares transfer between sellers and buyers immediately but funds only flow on the settlement day. Thus if a settlement failure does occur the seller is exposed to both the asset risk (his shares have moved) and market risk (difference in market prices between trade date and settlement date).

We have been informed by the CSE that it is actively working towards implementing the first phase of a robust risk management system to reduce contra party risk. We welcome such a move for it will significantly reduce systemic risk. In the interim period steps must be taken to preserve the existing net capital formula for it is based on IOSCO recommendations for emerging markets – Guidance to Emerging Market Regulators Regarding Capital Adequacy Requirements for Financial Intermediaries. Below is an extract from the recommendation section of the report (page 25 of 243).

One approach that accurately reflects changes in the risk profile of an intermediary is the Risk Based Approach, which provides intermediaries with a capital requirement which is proportionate to the element of risk. Thus, the capital requirements are neither too severe, (which would increase costs for the firms and affect their efficiency), nor too slack. In order to strengthen and further develop EMC’s capital markets, it is recommended that EMC’s graduate towards using risk based models as they are more forward looking approaches, in-line with international best practices and most developed economies. One must recognize however, that sophisticated risk based models may be too complicated and advanced for some jurisdictions to adopt, and may initially require considerable investment in the development of infrastructure, personnel and strengthening of existing risk management frameworks.

One significant component of arriving at a representative capital adequacy level is the implementation of adequate haircuts, based on the liquidity of the assets. This is a highly encouraged practice that should be explored by jurisdictions which do not currently have this requirement in place.

On 14th Sep 2010 the SEC issued a directive to the CSE to mandate brokers to refrain from extending credit to investors beyond T+3. At the same time they encouraged brokering firms to setup separate subsidiaries so that they can conduct margin trading business – since such entities are limited liability companies there is adequate ring fencing to prevent a spillover from the credit extending entity to the brokering firm.

As per your 2011 annual report there are 32 registered margin providers out of which 22 firms are affiliated to brokering firms. In many cases, brokering firms have tightly integrated their back office systems to provide a seamless solution to their clients at the same time maintaining the legal ring fencing between the brokering company and the margin providing entity. Further, the SEC has permitted higher financial leverage 4x for a margin provider.

The vast majority of margin providers affiliated to brokering firms do not have a minimum limit on lending – its untenable to do so for one can impose a maximum limit but not a minimum amount for one cannot compel a client to borrow. Further, good risk management practice would necessitate margin firms to entertain a number of smaller borrowers rather than larger one for it disperses the credit risk. We are made to understand that there is an argument being put forward that low net worth investors are deprived from access to credit when investing in equities – the evidence does not support this claim.

We would like to conclude by reinstating that we welcome the SEC’s efforts in regulating the capital markets in the country – a necessary condition for the development of the financial markets is to prevent the self-fulfilling cycle arising out of the economics of trust –Loss of trust -> Withdrawal from risky assets -> Rise in cost of capital ->Impaired returns. If this self-fulfilling cycle is not contained we will deprive businesses from access to equity capital necessary to make long term investments than in turn create economic growth.

Finally, the equity market is a conduit to attract foreign portfolio investments especially from large but more discerningforeign institutional investors thus every effort must be made to adhere to international best practices. To cite a recent example the country improved its ranking by 28 places in 2012 in the World Bank’s Doing Business Ranking under sub segment Protecting Investors – the key contributor towards this was the successful implementation by the CSE of the directive issued by the SEC on related party transactions in 2010."

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senior stock market analyst says President Mahinda Rajapaka has little options at his disposal to lift the falling stock exchange, warning that relaxing regulations and interfering with ongoing investigations into market malpractice would not help the bourse in the long run.

A senior stock market analyst says President Mahinda Rajapaka has little options at his disposal to lift the falling stock exchange, warning that relaxing regulations and interfering with ongoing investigations into market malpractice would not help the bourse in the long run.

 "The only option available to him is to advise all industry stakeholders to promote the CSE globally. The EPF cannot lift up the bourse by investing in dud stocks and banks most definitely will not invest in the stock exchange because it would be bad for their credit ratings. So the only option is to attract foreign investment to the bourse," the analyst said not wanting to be named as if promoting tough action against market malpractices was a bad thing in this country.

He went on to blame a section of the broker community and investors.

"They created this situation. They created a hype over dud or junk stocks and now, with retail investors staying clear due to high interest rates, they cannot offload them and are being bled. They are desperately trying to blame the regulator. Another reason for the market’s fall, is that it is undergoing a correction. If investors are serious about it, now is the best time to buy up fundamentally sound stocks.

"If foreign investors are to come in and if ordinary retailers are to benefit by investing in the stock exchange, the regulator must be allowed to do its job. There is some concern that there is some indirect but influential lobbying to halt investigations into market malpractice, even if this is done, the stock exchange cannot sustain growth if it cannot attract more investors. The regulator is doing a good job, but it needs to be strengthened further.

"Heftier fines and a prison term or two for those found guilty of market irregularities is probably the medicine required at this stage, but knowing how the system works in this country it is unlikely to happen," the analyst said.

As at yesterday, the net foreign inflows into the bourse stood at Rs. 23.7 billion.

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Thursday, July 19, 2012

Market Snapshot 19-07-2012

source - CAL Research

Sri Lanka stocks up 1.4 -pct: rupee firmer

July 19, 2012 (LBO - Sri Lanka stocks ended a five day losing streak and close up1.42 percent Thursday in a broad based rally while the rupee firmed against the spot US dollar, brokers and dealers said.

 The Colombo All Share Price Index gained 68.47 points to 4,891.11 up 1.4 percent and the S&P 20 Index of large cap stocks closed up 0.6 percent (17.43 points) to 2760.18.

 In forex markets rupee closed around 133.10/30 to the US dollar in the spot market up from 133.45/55 levels a day earlier. Business was done at levels as strong as 133.00 dealers said.

Thursday's turnover of 666 million rupees was dominated by Sampath Bank with 248 million rupees while index heavy John Keells Holdings contributed 56 million rupees and DFCC 52 million rupees.

John Keells Holdings gained 3.00 rupees to close at 180.00 rupees up 1.69 percent.

DFCC rose 1.00 rupee to close at 105.50 rupees up 0.9 percent.

Dialog Axiata PLC, the country’s largest mobile phone operator, gained 10 cents to close at 6.10 rupees up 1.67 percent.

Aitken Spence Plc gained 30 cents to 110.50 rupees and Distilleries Corporation rose 1.10 rupees to close at 123.50 rupees.

 Commercial Bank gained 1.00 rupees to close at 77.00 rupees while Hatton National Bank rose 1.40 rupees to close at 139.50 rupees.

President Mahinda Rajapaksa has called the Commissioners of the Securities and Exchange Commission, the Director Board of the Colombo Stock Exchange, members of the Colombo Stock Brokers Association and investors for a special meeting on Friday.

Brokers said some brokerage firms have not received invitations yet.

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Wednesday, July 18, 2012

Market snapshot -18 07 2012

source - CAL Research

Sri Lanka stocks down 0.6-pct

July 18,2012 (LBO) - Sri Lanka's stocks fell 0.6 percent Wednesday, with large cap stocks losing ground, brokers said.

 The Colombo All Share Price Index fell 30 points to 4,822 and the S&P 20 Index of large cap stocks fell 0.4 percent (13.02 points) to 2742.75

 Turnover was 383 million rupees. Sampath Bank was the dominant contributor posting 166 million rupees to total turnover.

DFCC was flat up 10 cents to close at 104.50 rupees.

Dialog Axiata PLC, the country’s largest mobile phone operator, slipped 10 cents to close at 6.00 rupees.

Aitken Spence Plc fell 80 cents to 111.0 rupees, John Keells Holdings slipped 1.20 rupees to 177.00 down 0.6 percent and Distilleries Corporation fell 2.60 rupees to close at 122.40 rupees.

 Commercial Bank closed flat at 76.00 rupees while Hatton National Bank fell 1.80 rupees to 138.10 rupees.

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Tuesday, July 17, 2012

Market snapshot -17 07 2012

source - CAL Research

Sri Lanka stocks down 0.5-pct, rupee weaker

July 17, 2012 (LBO) - Sri Lanka's stocks fell 0.5 percent Tuesday, with large cap stocks including banks losing ground, in a day which a billion US dollar bond was launched in international capital markets, brokers said.

 The Colombo All Share Price Index 27 points to 4,853 and the S&P20 Index of large cap stocks fell 0.7 percent (19.3 points) to 2,755.7.

 Turnover was 255 million rupees.

Aitken Spence Plc fell 3.80 to 111.0 rupees, John Keells Holdings fell 1.70 rupees to 178.20 and Distilleries Corporation fell 1.10 to 125.0 rupees.

Commercial Bank fell 80 cents to 97.20, Hatton National Bank fell 40 cents to 139.90 rupees.

In forex markets the rupee weakened as much as 133.95 to the US dollar before recovering to around 133.85/90 levels dealers said.

Though the central bank sold down small volumes of bills last week, its T-bill stocks was seen climbing again to 220 billion rupees.

On Tuesday a billion US dollar bond was launched in international markets and for which demand was strong sources familiar with the sale said.

Analysts say if the bond proceeds are bought by the Central Bank and large volumes of rupees dumped into the interbank market the rupee could come under more pressure.

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SEC gives more flexibility on broker credit

The Securities and Exchange Commission (SEC) yesterday announced greater flexibility on broker credit, following recommendations for same from the capital markets.

 The move follows discussions between SEC and the Colombo Stock Exchange on 12 July where many issues pertaining to capital market figured including management of credit by brokers to their clients.

“After much deliberation, the Commission decided to allow brokers more flexibility in managing their credit. Further it was noted that the CSE should create awareness amongst the brokers on the risks involved in such flexibility,” the SEC said in a statement.

 Having considered recommendations from the CSE, the SEC issued the following directive as an “interim measure”.

a) Debtors between T+3 -T+30 calendar days to be deducted if cost less provisions made for the period is greater than market value;

 b) Debtors over T+30 calendar days to be deducted at 50% of the cost less provisions made

 c) Debtors over T+120 calendar days to be deducted at 100% of cost less provisions made.

 SEC also said that all licensed stockbrokers will be required to strictly ensure the accuracy of the details of debtors represented in the net capital computation to the SEC and CSE and the maintenance of the minimum net capital requirement as stipulated in the stockbroker rules.

“Any failure by stockbroker companies to strictly comply” with the new directive will result in action being taken against such broker.

 The latest support to brokers and their clients is likely to be welcomed though it comes when the year to date negative return at Colombo Bourse is at near 20% in terms of ASI and over 17% as per the MPI. The market’s value has lost near 16% year to date as well.

 Yesterday the market opened the week on a positive note but the lacklustre performance of the Bourse continued. The benchmark ASI ended the day gaining 0.26% (12.58 points) over last Friday’s close whilst the MPI closed in the opposite direction losing a marginal 0.08% (2.21 points). Turnover was Rs. 196.9 million with LAUGFS Gas nonvoting, NDB and PC House Holdings being the top turnover generators of the day.

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Marawila Resorts goes for Rs. 350 m fresh expansion

Marawila Resorts Plc has announced an expansion of the hotel with the addition of 56 rooms via an investment of Rs. 350 million.

 The move sans the cost was first announced in the company’s 2011/12 Annual Report.

The addition of 56 rooms will be on the land available within the resort. Once completed, these new rooms will greatly improve operational efficiency and overall profitability of the hotel, Chairman A Rajaratnam said. The latest addition comes hot on the heels of Marawila Resorts completing a refurbishment program, upgrading the facilities. In the first quarter of 2011, the company raised Rs. 245 million via a one-for-four Rights Issue at Rs. 10 each for refurbishment, completed recently. 

 The investments made in upgrades to the rooms resulted in better rates and occupancies over the winter season. The refurbished ballroom was opened to excellent reviews and has attracted significant interest as a venue for weddings, conferences and seminars.

 In FY12, Marawila Resorts Plc saw its revenue rise by 22% to Rs. 256.7 million whilst profit amounted to Rs. 15 million, down from Rs. 19.2 million in FY11. The latter was adversely affected by a charge of Rs. 52.7 million due to the revaluation of the company’s dollar denominated debt following the devaluation of the rupee.

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Bourse lifts head

The Colombo bourse took a breather on Monday (16) after a string of bad days with the All Share Price Index closing 0.26 percent higher, gaining 12.58 points to end the day at 4,880.10.

The Milanka Price Index of more liquid stocks fell 0.05 percent, down 2.21 points to close at 4,308.81 while the S&P SL20 closed 0.08 percent higher, up 2.23 points to 2,775.09.

Year-to-date, the Colombo Stock Exchange fell 19.66 percent.

Turnover reached 196.9 million on a volume of 15.7 million shares.

"Markets managed to close the day in the green as some recovery came in the last half hour of trade," Bartleet Religare Securities said. The volumes dipped further today and stood at 196.6 million down from 299.1 million from Friday’s session. There was a net foreign inflow of Rs. 35.3 million."

"The ASPI ended marginally higher on the back of gains in a few large cap counters including DIAL, NEST, and AHUN. Subdued turnover levels were dominated by trades on LGL, PCHH & NDB," John Keells Stockbrokers said.

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The enemy within the stock market trader

By Raj Gupta

 Continuing on a reflective vein, I’d like to delve into the Higgs of trading/investing. What is it that holds successful traders/investors together? That might seem somewhat ambitious to begin with, so I’ll settle for a more modest inquiry ~ how do traders self-sabotage?

In the previous two articles, we talked about using stop losses to stay in the game long enough to turn profitable. We also talked about the insidious nature of stop-losses ~ taking too many of them could bleed your account dry before you turn profitable. In this article, we focus on the flip side ~ the fact that cutting your winners too quickly will lead, inevitably, to the demise of your trading account.

Dealing with your winners

As we develop as traders, we learn (hopefully!) to cut our losses quickly. It’s like a deliberate psychological lesson we teach ourselves. As a position moves beyond the point we’ve previously demarcated as the "pain point", a voice comes on in our heads repeating, somewhat monotonously, the need to look for an exit at the most favourable price possible. And over time, we become quite good at it.

We accept the fact that this is a numbers game: you have to keep playing on the hypothesis that your statistical edge will pay off in the long-run. So you’re ok taking those small losses in the hope that the (big) wins will more than compensate for the losses and actually make the effort worthwhile.

It is said that the main cause of failure among professional traders is not the small losses that they take but the small winners. They lose because they cut their winners too quickly. This means that their winners and losers are roughly the same size. Factor in the drain of the commissions, slippage, establishment costs (Internet, software etc) and you can see there’s no room for a living in there.


We’ve all been there. Suppose you operate on the basis of a two-point stop and a four-point profit target in the product you trade. You have a string of three successive losses with a particular setup. That’s nothing unusual, as we saw last fortnight.

Then your fourth trade starts turning in your favour. It moves two points in your favour and pauses. You panic.

Rather than let the trade work its way either to the profit target or the stop, you take yourself out of the trade for a small profit. And then you watch miserably as the market reaches your target or feel relieved if the market moves the other way and takes out what your stop would have been.

Either way, we’ve lost. We’ve lost because we scuttled our statistical edge ~ the premise of trading success. We prevented the law of large numbers from working its magic. We interfered with the lab experiment we talked about last fortnight. Do we count this fourth trade as a winner or a loser?

Suppose your trading plan dictated that after four successive losses with a given setup, it would be withdrawn for further diagnostics. One could argue that if the market would have gone on to hit your stop, one could have considered this a loss and, yes, withdrawn the "product".

The fact remains however that you’re tampering the experimental procedure with your "could haves, should haves, would haves". How much confidence (and motivation) can you muster in preparing the experiments if you know, in advance, that you’re going to violate them anyway?

The Higgs boson

I suspect that the non-violation of experimental procedure is the key particle that separates the successful traders from the unsuccessful ones. It is not a question of how much the trader is making: it’s how disciplined, resolute and consistent she is in applying the process.

Her trading goals are not money-centric: she does not have a monthly or annual dollar target. She grades herself on the basis of how well she follows her trading plan and executes her setups. Strangely enough she also seems to make money ~ lots of it!

Notice: Trading options involve substantial risk of loss and is not suitable for all investors. You may lose all or more of your initial investment. Information shared here is for educational purposes only.

The writer is managing partner of a financial engineering company based in Italy. He can be reached at

(The Statesman/ANN)

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