Market’s misery worsens

The stock market’s misery worsened yesterday with the benchmark All Share Index (ASI) dipping below the psychological 5,000 points level whilst year to date a staggering Rs. 371 billion in value has been wiped off.

The ASI yesterday dipped by 1.5% or 74.66 points, to close at 4,935.01, the lowest close in 22 months or since 9 August 2010. During the past six sessions the ASI has lost 5.5% whilst the year to date negative return is nearing 19%.

Analysts and brokers blamed the market’s misery to over-regulation on the part of the Securities and Exchange Commission (SEC) in addition to macro-economic concerns such as upward pressure on interest rates and falling rupee (exchange rate is now back to Rs. 131 level, far off from Treasury’s and Central Bank’s target of Rs. 125 and below) as well as overall lack of investor confidence.

Since the SEC’s latest announcement of new rules on Tuesday, the market has lost Rs. 82 billion in value whilst year-to-date drop in market capitalisation is 16.7%. The Milanka Price Index’s year to date negative return is now over 15%. Around 176 of the 280 listed companies registered losses.

“Certainly the remaining local investors have lost confidence due to the new set of rules announced whilst the market isn’t seeing many new local investors due to its dip as well as other disturbing developments,” analysts said.

With month-end forced selling pressure returning during the next few days and lack of willing buyers overall, further woes for Bourse are on the cards.

“There may be bargain hunting when the market is coming down, but the next support level seems to be at 4,500,” Reuters quoted a stockbroker as saying.

It also said the market has been falling since Wednesday, when the Securities and Exchange Commission (SEC) issued a rule barring brokers from selling shares for six months from the day of buying.

The Bourse’s sole silver lining is continued foreign buying, with year-to-date net inflow being Rs. 22.4 billion.

Analysts have urged locals with weaker hearts to follow example set by foreigners whilst the market is currently attractive as it is trading at a deep discount, trailing at a PER of 10.0x.

Technically, the ASI was oversold on Monday with the 14-day Relative Strength Index at 20.118, Reuters data showed. It is one of the worst performers among Asian markets, having fallen 18.76% since the start of the year.

DNH Financial said despite the country’s robust macro-economics, it was very disappointing that the Sri Lankan bourse has significantly underperformed all global markets this year and is currently the worst performing equity market in the world, down 31%YTD in dollar terms.

“While most market commentators have cited no credible reason for the market’s decline, we believe that it is purely a matter of negative domestic investor sentiment that has stifled investment flows into the bourse over the last couple of months,” DNH added.

“With regard to the current market trajectory, the bourse is likely to continue to trade range bound (with a downward bias) in the short term in the absence of any significant news that would provide a strong impetus for a break to the upside although we could see increased institutional activity given that valuation multiples for select companies have become highly appealing, DNH Financial opined.

Yesterday the market saw early morning rebound which NDB Stockbrokers linked to late dividend announcements last week.

“Both the ASI and MPI recorded spectacular declines,” said Asia Wealth Management which said it “could partly be attributed to the fallout from the NSB-TFC deal which manifested itself in the form of the SEC’s decision to limit stock trades by employees of stock broking companies.”

Arrenga Capital said pointed out that the market continued its losing streak as investors reacted adversely to the confirmation of tighter rules imposed by the SEC.

“Heavy selling pressure engulfed the bourse following an official disclosure by the CSE, highlighting that most rules are to be enforced from 1 June,” it added.

Bukit Darah, John Keells Holdings and Lanka Orix Leasing Company were the biggest contributors for the 75 point decline of the ASPI while the MPI saw 20 of the 25 counters closing in the red.

An on board deal in heavy weight John Keells Holdings amounting to 100.000 shares taken off at Rs. 191 per share drove the counter to top the turnover list whilst several other mid-sized deals supported turnover.

A single off-market deal carrying 260.400 shares in Sampath Bank was transacted at a low of Rs. 160 each. The counter touched a 52-week low of Rs. 159. Banking sector counter; National Development Bank and Seylan Bank [Non-Voting] hit 52-week lows of Rs. 112.5 and Rs. 22 respectively while Commercial Bank of Ceylon remained flat for the day.

Interest was reactivated in Singer Sri Lanka as the counter closed at its 52-week low of Rs. 80 after an on board block of 200,000 shares was taken up at the same price.

Interest was also visible in the manufacturing sector; tile manufactures Lanka Tiles (-1.3%) and Royal Ceramics (-1.4%) were actively traded whilst Chevron Lubricants (-0.3%) also saw similar interest. The manufacturing sector index however slipped 2.3% for the day, trailing at a PER of 7.3x.