Investor confidence worsens by the day; bourse loses Rs. 53 b in value

• ASPI in steepest fall since February; fears over Takeover nBill force dumping of blue chips; EPF the lone ranger

Investor confidence is worsening by the day judging by the continued tumble in value of the Colombo bourse, as it suffered one of the sharpest declines yesterday.

The market capitalisation of the Colombo Stock Exchange (CSE) dipped by Rs. 53 billion, bringing the loss of value since 3 November to a staggering Rs. 127 billion.

The All Share Price Index fell sharply by over 2% to languish at a 14-month low, increasing the year-to-date decline to over 8%. Its fall was the sharpest since February this year. The Milanka index also shed by 2.5%, with its negative run now approaching 24%.

Unlike the initial days after the controversial Bill of Revival of Underperforming Enterprises and Underutilised Assets came to light, investors yesterday dumped fundamentally-strong stocks such as JKH and Carsons, whilst even Commercial Bank, which reported Rs. 6 billion profit by end third quarter, finished the day down.

Though on thin volumes, JKH share price dipped by Rs. 7 to Rs. 181.20, Carsons by Rs. 26.20 to Rs. 548.80, Commercial Bank by Rs. 2.60 to Rs. 102 and Distilleries by Rs. 8.30.

Multinationals such as Nestle, Ceylon Tobacco and Chevron dipped as well.

Analysts said with margin calls approaching along with feared foreign selling, the stock market would be under further pressure.

Seemingly it was the EPF which was the lone ranger picking up quantities of Browns and Royal Ceramics. These two along with deals on Chevron and Tobacco boosted turnover by Rs. 808 million, highest since 3 November but well below last year’s average of 2.4 billion and this year’s Rs. 2.5 billion.

Reuters reported that the State funds’ buying was to boost confidence at a time when the bourse was dented due to an assets acquisition bill ahead of next week’s budget presentation.

“Market turnover increased... which can be attributed to Government institutions buying in as an attempt to instil investor confidence in the market,” TKS securities said in an investor note. The bourse on Tuesday suspended the dealings of Pelwatte Sugar Industries and Hotel Developers Lanka Plc, which were listed in the takeover bill.

Analysts said investors were confused about the legislation, which they said would further hurt long-term institutional investor sentiment. Moody’s Investors Service on Monday said the law was potentially credit-negative.

The bourse has fallen 10.2% since 1 October. It has fallen to Asia’s 11th-best performer with a year-to-date loss of 8.2% after being on the top for most of 2011 and in 2009 and 2010.

There was net foreign outflow as well to the tune of Rs. 16.6 million. Offshore investors have sold Rs. 16.6 billion so far this year, and a record Rs. 26.4 billion in 2010.          

The rupee closed flat at 110.18/20 per dollar as a State bank sold dollars at 110.20 rupees despite importer demand for dollars, dealers said.

DNH Financial said with market sentiment expected to remain relatively weak, the bourse is expected to continue to trade with a downward bias notwithstanding the emergence of highly attractive valuations in selected counters that are expected to outperform on a medium to longer term basis.

“We advise investors to take advantage of price weakness in the market but strictly on a selective basis focusing on stocks with a strong business model and sustainable top line and bottom line growth,” it added.

Arrenga Capital said it was high time that investors incorporate up-and-down market cycles such as these to their investment theory.

“Despite falling of their investment portfolios, we advise our clients to take the current scenario positively, thinking that stocks get hit for some good reason. Hence, we direct to prowl after the undervalued steady counters that have gone down to bargains. The investment trick lies with identifying such stocks that are bent in the market storm but still are not breaking and would represent one of the finest buys on the market today,” Arrenga added.