Stock market misery persists as panic selling picks up

The Colombo stock market plunged further yesterday prolonging the misery as panic selling picked up heightening investor fears.

The market saw Rs. 25 billion in value wiped off bringing the total to over Rs. 150 billion since 3rd November.

Reinforcing market’s pulse, Reuters said mainly due to negative sentiment created by an expropriation bill amid forced selling to clear margin debt.     “Both indices plunged further as panic selling continued,” confirmed NDB Stockbrokers. “Index heavy JKH and HNB lost further ground contributing to the heavy fall in the MPI,” it added.

The Milanka Price Index dipped by 2.3% thereby pushing its year to date negative return to over 25% whilst ASI shed over 1% to finish at 6,022 points increasing its negative return to 9.2%.

Turnover was Rs. 590 million, low from Tuesday’s Rs. 809 million.

Primary contributors to turnover were Colombo Land (CLND), HVA Foods (HVA), United Motors (UML), Commercial Bank voting and non voting.

Premier blue chip dipped by Rs. 3.50 or 2% to close at Rs. 178 whilst HNB’s decline was sharper by 6.78% or Rs. 12.20 to Rs. 167.20. Spence lost by 4% or Rs. 4.90 to Rs. 120.

“This is a bloodbath due to the takeover bill and many investors are selling blue chip shares on unfounded rumours,” Reuters quoted an unnamed stockbroker as saying.

SC Securities said “investors continued to be jittery over the present market situation” as analysts feared the ASI dipping below the psychological 6,000 points today if Bourse fails to trigger a fresh buying rally especially by bargain hunters.

 Arrenga Capital said most other counters were “victims of overreactions to the downside.” Around 83 counters hit new 52-lows with worthy counters such as Central Finance, Aitken Spence, Vallibel One, Commercial Bank, John Keells Holdings, John Keells Hotels, DFCC Bank, Janashakthi Insurance, Distilleries Company of Sri Lanka and Asian Hotels & Properties also being among them.

Despite panic selling, Arrenga Capital emphasised many opportunities exist for value investors looking for the most ‘bang for their buck’. “With many trading at their 52-week lows, it is the right time for investors to now move on a Price/Book valuation and capitalize on the under-valued stocks (PBV of the market is at around 2.0X),” it added.

DNH Financial said with the market fast approaching the psychologically important 6000, a break in the support level could trigger a wave of panic selling by retail investors.

“While a breach is definitely not good news for the market, we would nevertheless like to remind investors that current valuations on selected stocks are in single digit territory and offers an attractive price considering the medium to longer growth prospects for these counters,” DNH added.

Reuters report linked JKH’s dip to the speculation that its cargo handling unit at the Colombo port will be taken over by the state after last week’s assets acquisition bill.     

The bill allows the government to recover “underperforming or underutilised” state assets put in private hands. So shares of private companies that either were privatised from state assets or which have bought state assets are seen as at risk.     

Shares of Distilleries Company of Sri Lanka PLC and United Motors Lanka PLC also fell 0.6 percent and 1.37 percent respectively on takeover fears.    

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 had suspended and halted the dealings of Pelwatte Sugar Industries and Hotel Developers Lanka Plc, which were listed in the takeover bill. Shares in Pelwatte Sugar have fallen 15.5 percent and those of Hotel Developers Lanka have dropped 27.1 percent since the market first got wind of the proposed bill on Nov. 1.

The bourse has fallen 11.2 percent since Oct. 1 and is Asia’s 11th-best performer with a year-to-date loss of 8.2 percent after being on the top for most of 2011, and giving the best returns in Asia in 2009 and 2010.     

The bourse saw a net foreign inflow of 16.1 million rupees on Wednesday, but thus far in 2011, offshore investors have sold 16.6 billion, and a record 26.4 billion in 2010.    

Losers outnumbered gainers by 169 to 39 on Wednesday, Thomson Reuters data showed.     

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.