Small caps dominate as capital market braces for new regime at SEC

Retailers-driven ‘small caps’ dominated the Colombo Bourse yesterday, whilst most blue chips and conservative investors were less active as the capital market prepared to adjust under a new regime at the SEC.

Perhaps finding it difficult to comprehend whether the new appointments to the Securities and Exchange Commission (SEC) were good or bad, stock market indices fluctuated sharply, reflecting investor mindset.

Rapid rise in morning trade saw a quick profit taking as expected, which forced indices down before being revitalised by a fresh round of buying.

The first day of Dr. Nalaka Godahewa as Chairman of the SEC saw the market close at a three-month high. The ASI ended the day up 11.50 points or 0.23% and the MPI up 2.51 points or 0.05%. Turnover was Rs. 444 million dominated by retailers as confirmed by 11,101 trades doing 44.2 million shares.







Overall activity yesterday, however, was lower compared to the previous two days, when the market was bullish factoring the benefit of a more pragmatic regulator.

Perhaps given the circumstances under which the new appointments were made and the selection of people, which remains contentious to some, a misinformation campaign including a claim that Godahewa hasn’t accepted the appointment, via text and emails, had an effect on investor sentiments.

Despite the announcement of ex-Central Banker Priyantha Fernando and former Chartered Accountants of Sri Lanka President Sujeewa Mudalige as new Commissioners, market talk was that they hadn’t yet received appointment letters.

Nevertheless, retailers who previously shunned the market continued to be active, a development by which the Government is likely to be encouraged. Foreign investors have been subdued during the past two days though remaining net buyers on thin volume.

‘Retailers dominate as foreigners watch’ was the title of NDB Stockbrokers’ daily market report, as it said: “The Bourse witnessed strong retail activity across the board from the start of the day and exhibited positive sentiments on certain selected counters.”

It said Lion Brewery continued to generate further interest while Banking and Finance sector counters such as Commercial Bank, Nations Trust Bank and Central Finance recorded further gains. Retail favourite counters such as Environmental Resources, Colombo Land, Kalpitiya Beach Resort and Citrus Leisure lead the turnover to near the half a billion mark.

The Banking, Finance and Insurance sector became the highest contributor to the market turnover and the sector index increased by 0.05%. The Hotel and Travel sector emerged as the second highest contributor to the market turnover (due to Kalpitiya Beach Resort and Citrus Leisure) and the sector index fell by 0.31%.

The share price of Kalpitiya Beach Resort appreciated by Rs. 0.50 (8.20%) to close at Rs. 6.60 while the share price of Citrus Leisure lost Rs. 0.30 (0.97%) to close at Rs. 30.50. Environmental Resources, Colombo Land and Vallibel One were also among the top contributors for the day.

The share price of Environmental Resources surged Rs. 0.50 (3.23%) to close at Rs. 16 while Colombo Land saw its share price gain by Rs. 0.30 (0.80%) to close at Rs. 37.40. The share price of Vallibel One lost Rs. 0.10 (0.65%) to closed at Rs. 15.40.

New World Securities said the ASI moved up as investors continued gaining confidence and retailers were seen profit taking.

Lanka Securities said the market held on onto positive ground after volatile trading during the early hours.

“Retail participation continued to dominate trading with retail active counters taking centre stage throughout trading. Premier blue-chip company John Keells Holdings saw its shares close slightly lower on thin volumes,” it said.

“Cash map for was 46.90%, which actually indicates that selling pressure prevailed over buying interest,” Lanka Securities added. Foreign participation was 9.4% of total market turnover and foreigners were net buyers of Rs. 5.7 million.

Softlogic Stockbrokers headlined its report ‘Crowd behaviour powers the Bourse’ and said the market performance for the day assessed the sudden resurge of the retail investor community.

Environmental Resource Investments [Normal, W:0003 and W: 0006] (+3.2%, +1.9%, +3.7%), Colombo Land and Development (+0.8%), Kalpitiya Beach Resorts [+8.2%], Citrus Leisure [Normal and W: 0019]  (-1.0%, -6.9%), Lanka Hospital Corporation (-1.05%), Panasian Power [-0.5%], HVA Foods (+0.72%), Free Lanka Capital Holdings (+4.4%), Ceylon Grain Elevators (+0.9%), Dankotuwa Porcelain (+5.1%), Three Acre Farms (+0.0%), Regnis Lanka (+0.31%) and Waskaduwa Beach Resorts (+2.6%) flickered on the top trading screen as each share gained 6.1% on average at their intra-day high points.

“However, many of this herd instinct cluster provoked selling after reaching satisfactory high points (as the dips above indicate) due to lack of investor confidence to hold on their investments,” Softlogic said.

The non-retail seeking counters were barely spotted in the top turnover list. Lion Brewery saw 49,700 shares being taken on board at Rs. 235 as Expolanka Holdings too saw a number of sizeable deals taking place in the market.

Tokyo Cement encountered 234,600 shares being transacted at Rs. 27 in the market whilst Aitken Spence Holdings continued grabbing some attention following yesterday’s stake change.

Sampath Bank witnessed some active play whilst John Keells Holdings was seen declining 0.2% to Rs. 198 at day’s close. Despite shedding 0.7% at its close of Rs. 15, Vallibel One saw two sizeable quantities adding to 890,500 shares taken on board at Rs. 15.

Softlogic also describe the day as an ideal trading opportunity with the penny play taking the key lead. “The day was not for strategic investors. Many such similar runs had driven the Bourse to face strict reforms of regulations. Many retail investors have been hyped with the appointment of the new Board at SEC as they lose focus on attractive valuations and fundamentals. However, the market’s past months’ slow run and discounted valuation happily moves it into a welcoming position for any such up runs. There are amongst them a crowd who are stuck with a loss-making portfolio and we believe today’s trading has set many free whilst a number looks to enjoy their gains,” it said.

“We also rate today’s run as to be short-lived and not to lose focus on the valuations and the fundamentally-sturdy counters though feasting on common hysteria as today’s would be harmless as you remain hawkeyed on the move and avoid buying on top of the movement and selling at the bottom of the movement,” Softlogic emphasised.

DNH Financial said the market performance over the last few days appears to be a marked turnaround from the last couple of months and was clear a step in the right direction.

However, DNH continues to advise investors against seeking speculative positions but focusing on quality companies that will generate double digit returns over a reasonable investment horizon.

“Given the twin impact of high oil prices and rise in interest rates, we advise investors to carefully analyse the cost and capital structure of companies before considering investment avoiding those that may have high energy requirements (and are unable to successfully pass on price increases to consumers) and are overly leveraged which may experience margin erosion both at the operating and net level. We reiterate the need to consequently focus on cash rich companies that will benefit fully from the domestic consumption growth,” DNH said.