Colombo stock market sets new records in remarkable rebound

• Last week’s volume of shares traded at 737 m, higher than the individual monthly figures since February 2012.

In a major comeback, the Colombo stock market last week shot up by 6% and in value terms by Rs. 121 billion, purely driven by improved sentiments and return of retailers on the back of expectations of a more pragmatic regulatory combined capital market development regime under a new Chairman at SEC.

The 6% rise is gigantic for a week if one factors in that in 2011 the overall market dipped by 8.5% and until mid-July the year-to-date dip was 20%.

The most emphatic indicator of rebound in retail investor sentiments was the singular achievement of volume. Last week’s trade of 737 million shares was higher than monthly figures since February 2012. Previously there had been volumes of over one billion shares traded on a single week but since there were no major strategic deals last week, the figure is impressive.

 The number of trades which powered this volume almost overtook the whole of July trades.

Despite continuing scepticism by pessimists, most analysts tip that if retailers find enough sentiment to keep their momentum intact leading to proactive play by institutional investors, September will end up as a record month for Colombo Bourse.

After the market fell to its lowest level on 6 June to be down by 22% and even before most brokers and analysts have termed, there are a large number of stocks which are attractive on valuation. After being net sellers to the tune of Rs. 19 billon last year and Rs. 26 billion in 2010, foreigners had long seized the attractive opportunity. The result is near Rs. 29 billion record net foreign inflow so far.

Last week too there was a net inflow, despite some prematurely flagging off a claim that non-nationals will run away from the market following changes at the regulatory body. For this argument to hold water, the next few months will be under watch.

But at least one broker – Asia Wealth – believes foreigners will flood the market to pick up medium to long term value, whilst several others believe a local rally too will give the required revival. Usually foreigners exit when locals enter.

By all yardsticks, in the first week of his office as Chairman SEC, Dr. Nalaka Godahewa has merely turned around a once-dead market. The challenge is its sustenance, which the new Commission must be fully aware of, and is likely to draw initial plans and make the overall CSE more resilient with inputs from all stakeholders in the coming weeks.

“The market extended its upward run during this week, sustaining its confidence gathered during last week. Positive signs were seen with improvements across the board. Retailers gained confidence and, overall, the buying side was stronger than the selling side strengthening the bull run,” Asia Wealth said.

“Last week’s upward momentum continued this week with all three indices recording significant gains,” said Acuity Stockbrokers in its weekly report on Friday. The ASPI gained 6.11% or 316.70 points over the week to close at 5,496.85 points. The MPI gained 5.85% (281.37 points) to close at 5,093.36 points, while the S&P SL 20 Index increased 105.93 points (up 3.68%) to close at 2,983.81 points, it added.

“Supported by across-the-board retail buying, the Bourse ended the week on an encouraging note, with the ASPI breaking through the psychologically important 5,500 level, but closing at 5,497, the strongest single gain in seven months. The MPI also gained 5.8% to close at 5,093 as investors sought blue chip counters,” DNH Financial said.

“The Colombo Bourse ended the week on a positive note after witnessing considerable gains throughout the week. The Colombo benchmark index, the All Share Price Index (ASPI) surpassed the 5,500 points mark after a period of more than four months to end the day at 5,496.85 points, gaining 2% (107.93 points) on Friday,” SC Securities added.

“Reinvigorated retail sentiment continued to drive markets, with consistent retail buying pushing all three indices into the green. The ASPI, which closed the week just four points below the 5,500 level, rose 7.7% since hitting the key technical support level of 5,100 last week. Turnover levels – which were boosted both by improved retail activity and large block trades on selected stocks – too rejuvenated, closing the week at Rs. 6 b and pushing the daily average to Rs. 1.20 b, a significant improvement from the YTD average of Rs. 0.9 b,” Acuity said, adding, “Further retail dominance in the week ahead is likely to sustain the current positive momentum.”

Lanka Securities said Friday saw the market closing proceedings for the week on a high note, which signified the heavy retail participation seen throughout the week on the back of improved sentiment. Gains on most blue-chips helped to secure much needed confidence to investors. Some factors to consider would be the rising rate of interest and that most counters are moving away from attractive levels as seen prior to this upsurge.

Asia Wealth said indices benefited mainly on the back of the gains made by Commercial Leasing & Finance (37.1% WoW), Sri Lanka Telecom (8.0% WoW), Bukit Darah (7.6% WoW), Distilleries Company of Sri Lanka (13.3% WoW) and Lanak Orix Leasing Company (18.8% WoW).

Bulk trading was witnessed on fundamental counters led by accumulative strategies of high net worth and institutional investors on the following counters: Commercial Bank of Ceylon, Bukit Darah, People’s Leasing Company, Sampath Bank, John Keells Holdings, Lanka Orix Finance, E- Channelling, and Asiri Surgical. Apart from the above, the appreciation of market capitalisation during the week is 4.7% to reach Rs. 2.1 trillion, and the year-to-date negative return has eased to -9.5%.

The highest traded counter for the week in terms of turnover was Sampath Bank, resultant from a crossing on the counter. The second most contributor for the turnover was Asiri Surgical, subsequent to a 7.9% of equity change hands in a single trade. Further to this, E-Channelling, which was one of the most sought after by retail investors, also recorded a crossing to appear among the top contributors for the weekly turnover.

Heavyweight John Keells Holdings, People’s Leasing Company, and Lanka Orix Finance Company were also amongst heavy contributors, to bring the total turnover for the week to Rs. 6 b, a 32.7% WoW increase from the previous week’s turnover level, while on average the market has recorded a daily turnover of Rs. 1.2 b over the week.

On a separate note, the upsurge in the market has improved the Bank Finance Insurance index by 9.3% WoW whilst Manufacturing and Diversified sectors gaining 7.4% WoW and 4.6% WoW respectively.

Furthermore, Seylan Merchant Bank (Non Voting), Free Lanka Capital Holdings, E-Channelling, Asiri Surgical Hospital, and Blue Diamonds (Non Voting) topped the list in terms of volume traded during the week.

The week saw foreign purchases amounting to Rs. 632.2 m whilst foreign sales amounted to Rs. 392.8 m. Market capitalisation stood at Rs. 2,101.9 b, and the YTD performance is -9.5%.