Mahinda magic!

The mere news of President Mahinda Rajapaksa meeting brokers, as exclusively reported by the Daily FT yesterday, was the tonic the bulls-starved retailer investors needed to lift their spirits as they powered a massive rebound, propelling the ASI to record its biggest day gain in 15 months.

The Bourse’s value soared by a record high Rs. 79 billion, even bettering the gain (Rs. 61 billion in value terms and by 2.7% by the ASI) over the news of the exit of SEC’s Director General on 2 November. The ASI’s previous highest single day gain was 4.7% on 10 August last year.

       

That investors were rejoicing the mere news was proved by the fact that the meeting between President Rajapaksa and members of the Colombo Stock Brokers Association (CSBA) finished only around 2 p.m., just 30 minutes before market close.

By 2 p.m. the ASI had risen by 234 points and the Milanka by 215 points, both registering over 4% growth. The indices finished the session up 217 points (3.73%) and 181 points (3.57%) respectively.

The gains were enough to pull back the ASI’s negative year-to-date return to below 10% to finish at 9.25% as against Friday’s figure of 12.5% and cause the MPI to move down to 25.9%, down from 28.4%.

Suggesting there were no sellers, turnover was only Rs. 1.23 billion, highest since 18 November, but well below 2010 and this year’s average of Rs. 2.4 billion. The number of shares traded was lower – 79.3 million as against 106.3 million on Friday – but the number of trades improved to 20,890, from 12,159. The latter further reinforced the retail play. Gainers outpaced losers with 87% or 199 of the traded stocks improving their price.

The only negative yesterday was the market’s continued reliance on second tier and speculative stocks. HVA Foods topped the turnover with Rs. 154 million or 12.47%, with four million shares traded before closing at Rs. 40.80, up by Rs. 8.60 from Friday.

Other major contributors were Colombo Land (7.6%), Blue Diamond – Non Voting (4.8%), East West Properties (4%) and Orient Garments (3.8%). In the percentagewise gainers list, several ERI warrants figured among the top 10, as well as Dankotuwa Porcelain, whilst surprisingly among notable losers were Ceylon Tobacco, Ceylon Tea Services and Lanka Walltile.

Blue chips which had too had been victims of the market’s lack of confidence improved their prices with counters such as Hayleys, Aitken Spence, Hemas, Nestle and Cargills gaining sharply. Market heavyweight John Keells Holdings ended up 0.5% to close at Rs. 175.

Almost all brokers attributed yesterday’s rebound to positive vibes over the brokers’ meeting with the President.

“The market started in the green and gained further ground during the day amidst the speculation of a positive outcome from His Excellency the President meeting the representatives of the stockbrokers to discuss the prevailing crisis in the Colombo bourse,” NDB Stockbrokers said.

“The ASPI regained the 6,000 point mark while both indices recorded triple digit growth. Amidst the strong bull run witnessed, heavy activity was seen in retail favourite speculative counters as these dominated the top turnover contributor list,” it added.

Arrenga Capital said that news of the President’s meeting with a group of brokers had raised hopes on the investors expecting a positive move by the President to boost the stock market. The ASPI took a straight positive run to denote a +200 point gain since its peak on 14 February 2011, it added.

“Most advisors took a ‘hold’ move as they waited for the outcome of the brokers’ meeting with the President. Some investors however hesitated to get into a buying mode, thinking to instead sell down as and when their portfolios had made marginal profits or broken even. This cautious investor move has been partly triggered by the brokers, who look to restore their debt situation. This thought of vigilance can also be justified with bourse’s failure to keep up the pre-Budgetary rally and the maximum duration of such recent speculative runs had just been a day,” Arrenga opined.

DNH Financial said that reversing last week’s decline, the market reported its highest daily gain in 15 months, rising by 3.7% to close a tad above the key support level of 6,000 following a meeting between stockbrokers and President Mahinda Rajapaksa with regard to the prospect of a relaxation of credit rules.

“With investor attention likely to be significantly focused on the Presidential meeting with brokers, we expect the market to move sideways with an upward bias in anticipation of announcement by market regulators,” DNH said.

“With the bourse now trading at the all important 6,000 level, we believe that the market could record a significant break to the upside should a relaxation in credit rules be announced. In any case, erring on the side of caution, we advise investors to continue to maintain a medium- to longer-term investment horizon and focus on building a robust portfolio of stocks based on a rigorous investment selection process and advice against seeking any short-term opportunities which can prove highly risky given the current nervousness in the market,” DNH added.