Bourse needs intelligent investors says Asia Securities

The Colombo stock market needs scores of intelligent investors especially following last week’s correction says Asia Securities Ltd.

“The market followers who purchased the stock at the highest level must be praying to their stars for the bourse to bottom-up. However, what they do not understand is that searching for active returns always is tagged to active risk,” opined Asia.

It said that active return comes with less diversification hence, when the market takes a U-turn they get hit first. Investors who have leveraged to the maximum and invested in few stocks (with less diversification) seeking for active return, suffers the most since they actually do not have free cash to buy at low levels and average the cost of purchase.

Asia pointed out that seeking for active return (alpha) in a less efficient market like Colombo  is justified; however, seeking for alpha with high concentration on few stocks would elevate the active risk of the investment (hence, would be greatly susceptible to a overall market change) is what local investors do not understand.

“By no means are we saying that hunting for active return is bad, it’s the risk tolerance levels of the investor that would drive him in to such strategy. However, we would like to advice the investor to pursue a diversification strategy that would enable them the mix of active and passive investments (core – satellite approach),” Asia recommended.

“Less greed would definitely make this work,’ the broker said adding the current market dip could be looked from a positive angle where it creates an oasis of an opportunity for investors who have free cash to collect good stocks at low prices.

In this context Asia is advising investor “be intelligent; hunt for the active return; but minimise your risk (beta of the portfolio) with a bit of diversification and less greed.”

Asia said Colombo Bourse continued to lose ground throughout the week ended, with bearish sentiments ruling across the board.

The All Share Index dipped significantly by 351.7 points WoW to close at 7,313.0 points (-4.8%), whilst the Milanka Price Index also shed 207.2 points WoW to close at 6,822.2 points (-3.0%).

The All Share Index dipped mainly on the back of the losses made by LB Finance (-52.5% WoW), Bukit Darah (-6.6% WoW), John Keells Holdings (-5.2% WoW), Carsons Cumberbatch (-2.2% WoW), Distilleries (-2.1% WoW), Ceylon Tobacco (-4.0% WoW), and National Development Bank (-1.4% WoW). Sri Lanka Stocks continued with its correction spree with ASI dipping a thumping 350 points with heavy selling pressure seen across the board.

Since its peak in 14 February 2011 (ASI touched 7,811.8), bourse has witnessed Rs.161.5 bn worth of value wiping off, where the market capitalisation currently stands at Rs.2, 439.1bn.

The market witnessed a mere recovery during Thursday, yet could not maintain and reverted back to its bear sentiments to wrap up the week on a negative note.

Heavy selling pressure was seen across the board, where profit taking was evident in selected counters throughout the week. Market saw substantial losses made on few illiquid stocks including, Carsons Cumberbatch, Bukit Dharah & Guardian Capital Partners, which saw rapid gains few weeks back.

Trading over the past week recorded an average daily turnover of Rs. 2,010.5 mn over the past week, together with an average volume of 63.3 mn.

Heavy Weight John Keells Holdings led the market, adding circa 11% of week’s turnover, where the counter saw heavy Institutional and high net worth play throughout the week.

Similar interest was prevalent in Tile Sector heavy weight Royal Ceramics and Laugfs Gas (Non Voting) with few large scale transactions backing the turnover levels primarily.

Piramal Glass continued to be among the most sought after counter by retailers, whilst cash rich Distilleries Company subsequent to the gain made on disposal of Lanka Hospitals, attracted active investor play. Furthermore, Lankem Development announced acquisition of 62% stake in Agarapatana Plantations through a rights issue of 15 for 01 at Rs.25.0, whilst its subsidiary Kotagala Plantations disposed its 7.8% stake in Agarapatana Plantations. Meanwhile Colombo Fort Land & Building announced a sub division of 05 shares for every 01 ordinary share held. Banking & Finance sector counters including National Development Bank and Ceylinco Insurance grabbed high investor activity, where the sector contributed circa 18% of week’s turnover. Piramal Glass, Seylan Merchant Bank (warrants) and Richard Pieris continued to top the list in terms of volume during the week.