Monday, October 1, 2012

Market mocks maligners!

Despite certain reservations since the 20 July Presidential Forum, with capital market stakeholders net foreign inflow has soared by Rs. 8 b to record Rs. 31.7 b and market capitalisation by Rs. 417 b

Making warnings of foreigners exiting following Presidential intervention or alleged mafia-supportive changes at SEC of little credence, the Colombo Bourse has seen net inflows rising by Rs. 8 billion apart from market capitalisation soaring by Rs. 417 billion.

If one were to discount the rise in prices and market’s value to mere sentiments (though most others think otherwise given attractive opportunities on fundamentals), then the Rs. 8 billion net foreign inflow since mid-July bringing the year to date figure to near Rs. 32 billion is emphatic.

 When President Mahinda Rajapaksa held a forum with capital market stakeholders on 20 July, there were many who rushed to conclusion that political intervention would send wrong signals to foreign investors. Some even said there will be a quick flight of existing foreign investors.

 On the contrary there have been several new funds in recent weeks bolstering net inflow weekly. On 19 July the year to date net foreign inflow was Rs. 23.7 billion whilst last week it was Rs. 31.7 billion reflecting a Rs. 8 billion increase.

 The Rs. 31.7 billion is an all time high and confirms a major rebound in foreign investor sentiments given the fact that last year there was Rs. 19 billion outflow on top Rs. 26 billion flight in 2010.

 Whilst JKH remains the darling of foreign investors of late Dialog has been a hot favourite. During past two weeks, foreigners have picked up 23 million shares of Dialog for Rs. 200 million whilst its price too has bounced back. Premier blue chip JKH has in September seen nearly Rs. 1.5 billion of net foreign buying inclusive of Rs. 609 million last week. Asiri Hospitals which struck a deal with foreign fund Actis recently saw the new shareholding collecting a further Rs. 800 million shares on Thursday. Overall last week saw net foreign inflow of Rs. 1.4 billion.

 Lanka Hospitals Corporation has also seen new foreign buying. Other foreign-favourite stocks throughout the year have been Nestle, CTC, Commercial Bank, HNB, Sampath Bank and Distilleries.

 The continued foreign interest has encouraged a fair amount of local investors though still a large number are blind to what foreigners see in Sri Lankan equities. However some local brokers and analysts also fail to be heartened by the record foreign inflow whilst some hail Bourse’s attractive valuations when posed why foreigners are buying whilst they underplay the same when locals buy on renewed sentiments.

 Be that as it may, in tandem with rebound in sentiments especially since the appointment of a more pragmatic Chairman at the SEC, the Colombo Bourse has seen market capitalisation swell by Rs. 417 billion between 19 July and last week.  This period however in fact had only recouped loss ground as by July the value of the Bourse had lost slightly over Rs. 400 billion.

 Whilst on 19 July All Share Index was down 19.5% year to date (it was down 22% by early June), by last week the negative return had been reduced to below 2%. MPI which was down 17% in mid-July has by last week turned a positive 8%. With Price Earnings Ratio at 16 times, some have flagged off that market as getting overheated whilst some others otherwise.

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