Born again Bourse?

The Colombo stock market is increasingly showing signs of rebirth as its value has risen by Rs. 153 billion in a week after slumping sharply on 2011 Valentine’s Day.

Bullish sentiments saw the Bourse up over 2% yesterday with market capitalisation improving by Rs. 41 billion to Rs. 1.987 trillion bringing the total to Rs. 153 billion from Rs. 1.834 trillion on 14 February. Of the rally, last Thursday produced the biggest with market’s value gaining Rs. 96 billion.

“Strong retail buying dominated the market with continuing foreign interest and increasing market confidence resulting in a strong and steady upward movement of the indices,” NDB Stockbrokers said. After losing Rs. 112 billion last week Monday and Tuesday, the ASI’s year-to-date negative return was at a high 17.52%, but the rebound has gathered momentum with the YTD negative return reduced to 10.7% by yesterday.



During the past five sessions the market has risen by over 8% from a one-and-a-half year low early last week. Turnover yesterday was a health Rs. 1.5 billion.

Active local investor play was boosted by continued interest by foreigners. The market saw net foreign buying worth Rs. 449 million increasing the year-to-date net inflow to Rs. 2.3 billion. “Foreign buying seems to remain strong as the market recorded net foreign inflow for the ninth consecutive trading day,” Arrenga Capital said.

NDBS said foreign accumulation witnessed in blue chip John Keells Holdings helped to boost the indices while renewed interest in speculative counter Blue Diamond resulted in acceleration towards the end of trading.

Diversified sector was the highest contributor to the market turnover (due to John Keells Holdings and Aitken Spence) and the sector index rose 2.59%. The share price of John Keells Holdings gained Rs. 7.40 (4.44%) to close at Rs. 174 while share price of Aitken Spence increased Rs 0.70 (0.61%) to close at Rs. 115.70. Foreign holdings of John Keells Holdings and Aitken Spence increased by 1,056,149 and 450,900 shares respectively.

The Bank, Finance and Insurance sector became the second highest contributor to the market turnover (due to Commercial Bank) and the sector index jumped 3.41%. Commercial Bank share price increased by Rs. 0.10 (0.10%) to close at Rs. 100.90. Foreign Holdings of Commercial bank increased by 1,375,600 shares. Arrenga said with the positive sentiment in the last couple of days the retail participation improved as some of the retail favourite speculative counters gathered momentum. The speculative lot was led by Blue Diamonds [Non-Voting] with 20 million shares changing hands for Rs. 64 million as the counter closed at Rs. 3.3 (+13.8%) after peaking at Rs. 3.5. Interest was also visible in the Voting share which gained +25.0% (Rs. 7.1 closing) despite lesser volume of 5.7 million shares being traded.

Retail favourite Environmental Resource Investments was another speculative counter with heavy interest with a sharp of +13.9% to close at Rs. 22.2. The Warrants [W:0003 & W:0006] of the counter also followed the voting share with gains of +20.6% and +21.7%. Among other speculative counters that generated volume were Ascot Holdings (-4.5%) and PC House (-6.2%).

Some analysts however were concerned over sharp spikes and emphasised the importance of low yet stable gains over a longer period for greater sustainability of and confidence in the market. “With the sharp gains in the indices in the last few days some profit taking is likely to take place,” Arrenga Capital opined hence advised investors to collect stocks on a down trend while taking profit on up trends.

“Investors must keep in mind that there are dark clouds still hovering over the economy and the change in sentiment from extremely pessimistic to extremely bullish is a sign that this market is still fragile,” Stefan Juriansz, a technical analyst at the Bartleet Mallory Stockbrokers was quoted as saying by Reuters.

Although viewing the opportunities in the local bourse from a bottom-up perspective, DNH Financial said at a macro level, economic growth will continue unabated notwithstanding expectation of a rise in inflationary pressures due to cost push factors caused by the rupee depreciation and rising oil prices.

“We believe that the Government will have the capacity to fuel economic growth not only by strong domestic consumption but also supported by access to foreign capital at attractive rates thereby creating multiple, interrelated drivers for economic expansion. In balancing what we consider the compelling opportunities provided by the Sri Lanka bourse, we see particular value in domestically focused companies which should experience less earnings volatility against an uncertain global backdrop. Among domestically-oriented stocks, we are buyers of selected counters in the consumer, industrial, diversified, banking and hotel sectors which we believe are likely to attract investors who will appreciate their potential upside,” DNH Financial said