No brides but bears in June for bourse

■ Rs. 152 b in value wiped off so far in the month; Rs. 237 b since 2011 Valentine’s Day peak; ASI now at seven months low

June is renowned as being the month of brides, but the Colombo bourse has seen too many bears, with Rs. 152 billion in value wiped off so far.

A dip of Rs. 11 billion in market capitalisation yesterday brought the loss of value month to date to Rs. 152 billion. In comparison to the all-time high market cap of Rs. 2,600 billion on 14 February, yesterday’s figure of Rs. 2,363 reflects a loss of Rs. 237 billion.

Year to date the market’s gain has now been reduced to 3.4% down from 17.7% as at mid-February. However, the more important Milanka Index had produced a negative return of 9.4% year to date as opposed to a 2.65% return in mid-February. At present ASI is at a seven month low.

Capital market regulator the SEC which took pride in Colombo being world’s second best performer for two years is likely to take stock of its status quo when Commissioners hold their monthly meeting today.

Whilst some welcome the dip in value as part of correction from an overheated level as well as driving home the point that the stock market also needs to go down as opposed to moving up and up alone, others blamed negative sentiments over regulatory aspects as well as the economy for the dip.

Lack of serious foreign interest was another cause for concern because active non-national interest is critical for a healthy cycle of activity in the bourse. “It seems locals have lost much of their money power, whilst the more serious institutional players are staying on the sidelines because of play on speculative and junk stocks,” an analyst opined.

Independent observers said most retailers who reinvested past profits in dead stocks were now losing capital. This, as well as billions stuck in IPOs and private placements, could be the major reason for loss of money and staying power among majority of investors.

Lack of cash as well as other macro concerns could also explain why fresh round of buying is absent despite the market’s Price Earnings Ratio dipping to 23 times as against 30 times in mid-February. PE of blue chips and other fundamentally sound stocks remain attractive as well prompting some analysts emphasise that there are good buy opportunities for medium to long-term investors.

Meanwhile, NDB Stockbrokers commenting on the market’s performance yesterday said the ASPI fell by another 31 points despite the gains made during early trading. The index gained with Environmental Resource price moving up to Rs.82 (7.2%) and the trend started to reverse as the price came down to close at Rs. 69.80. While forced selling continued to drag the indices down, speculation on counters such as Environmental Resources, Ceylon Leather Products and Dankotuwa Porcelain seems to have resumed.

The Bank, Finance and Insurance sector was the main contributor to the market turnover (due to Central Finance), while the sector index decreased a further by 0.02%. Central Finance price increased Rs. 9.40 (0.68%) to close at Rs. 1,410. A total of 199,300 shares of Central Finance exchanged hands at a price of Rs. 1,400.

Investment Trusts sector also contributed significantly to the market turnover (due to Environmental Resources). The sector index decreased 1.71% today. Environmental Resources’ voting share declined Rs. 2.50 (3.38%) while Environmental Resources’ W0002 price fell Rs. 3.20 (8.25%) to close at Rs. 34.90.

Environmental Resources Investment (GREG) announced that it purchased 10,700 ordinary shares of its subsidiary, Ceylon Leather Products (CLPL), at a volume weighted average price of Rs. 93.38 per share on 27 June 2011, consequently increasing the shareholding in CLPL to 18.1 m ordinary shares (72.5%). 

TKS Securities said the market opened the day in green and shed ground during the latter part of the day to close in the red. The top traded counter of the day, Central Finance, gained +0.7% on the back of institutional investor interest and contributed circa 27% of day’s turnover. Further, the counter saw 199.3k shares changing hands during the day.

Environmental Resources Investments (voting and warrant 2012) and Ceylon Leather Products saw mixed investor interest whilst both institutional and high net worth investors were seen active on Distilleries.

A net outflow of foreign funds were seen during the day, where foreign purchases amounted to Rs. 51.8 m (US$ 472.2 k), whilst foreign sales amounted to Rs. 185.8 m (US$ 1,693.7 k).

Reuters said stocks hit a near-seven month low on Tuesday in light volumes as cautious investors stayed on the sidelines amid margin calls that forced selling and low liquidity.

It said main share index fell 0.46 per cent or 31.43 points to 6,862.83, its lowest close since 6 January. It had shed 7.5 per cent so far in June alone, but is still up 3.42 per cent so far this year.

It was the Asia Pacific’s top performer in 2010 and 2009 with 96 per cent and 125 per cent returns respectively.

Forced selling by brokers continued in line with the policy of the regulator Securities and Exchange Commission (SEC) to recover credits, while over Rs. 6 billion has been locked up in the two recent Initial Public Offerings.

Foreign investors were net sellers of Rs. 134 million worth of shares on Tuesday and have sold a net Rs. 6.82 billion in 2011 after a record 26.4 billion in 2010.

The day’s turnover was Rs. 2.35 billion ($ 21.4 million), in line with last year’s average of 2.4 billion, but below this year’s daily average of 2.86 billion.

The rupee closed a tad weaker at 109.69/70 a dollar from Monday’s close of 109.68/70 on importer dollar demand as a State bank sold dollars at Rs. 109.70, dealers said.

source - www.ft.lk