Foreign investors forge ahead whilst locals retreat

For the pessimists, the list of woes in Sri Lanka is countless, but for discerning and analytical non-nationals, the potential of Sri Lankan equities and the environment in which select listed firms will operate in the future doesn’t appear to be foreign or shaky, as confirmed by the continuous net inflow to the Bourse.

The market, which has lost Rs. 55 billion in value in two days due to a multitude of reasons including lack of confidence, yesterday saw foreign buying worth Rs. 1.37 billion and a net inflow of over Rs. 400 million after sales worth Rs. 950 million. Yesterday’s inflow brought the year-to-date figure back to Rs. 35 billion levels, an all time high.

As locals stayed watching or sold out, foreign funds were busy yesterday collecting available quantities of premier blue chip John Keells Holdings (JKH). It accounted for 22% of the day’s turnover, with 1.6 million shares changing hands for Rs. 343 million.

JKH saw 1.5 million of its shares done at Rs. 215 each via three crossings and thereafter the price dipped to close a Rs. 212. Some linked the start of the market’s dip to the slide by the number one stock.



However, overall sentiment was negative, resulting in the ASI losing 1.3% yesterday, bringing the year-to-date negative return to over 11%.

In a follow-up to recent executions, deals on ERI warrants generated Rs. 609 million turnover yesterday, whilst HNB and Aitken Spence were among major contributors though their prices dipped as well.

Asia Wealth Management said the activities at the Colombo Bourse continued to head south, as it lost field, pulling down the indices. Echoing what the Daily FT has been emphasising, Asia Wealth said: “Despite the 2013 Budget proposing several concessions to the capital market coupled with the satisfactory corporate earnings for the September quarter 2012 reported by several companies, investors remain on the side line, showing uncertainty.”

“Presumably, increasing interest rates are also posing challenges to the capital market activities as the investors are attracted towards the fixed income securities,” it added.

Lanka Securities said: “The market continued its lacklustre trend as indices saw a sharp dip led by retail selling. Few investors seem to be selling shares to prepare for the upcoming festive season.”

“The14-day Relative Strength Index (RSI) on All Share Index fell below the 30 levels and stands at 25, which indicates the market is in an oversold position and akin to a trend reversal. Market PE is 11.3x and most of the fundamental stocks are presently trading with attractive price multiples,” Lanka Securities added.

Softlogic Stockbrokers said the nosedive in the Bourse extended for a second day as portfolios start to get affected by margin calls. Selling pressure gained momentum during the first half of the day as the index bottomed out at 5,357.6, while a slight recovery followed allowing the index to close at 5,377.9 points.

The blue chips led by Aitken Spence (-5.6%), Ceylon Tobacco (-1.9%), John Keells Holdings (-1.8%) and Distilleries (-3.3%) were the primary contributors to the decline of the index.

“The lack of buying interest continued to haunt the market, while the sudden build-up of some selling pressure resulted in a deep downward swing. The high proportion of large deals suggest that institutional and foreign play still exists in the market dominating turnover and activity, picking up counters with strong valuations. We continue to suggest our investors note the trend of these large investors and accumulate the value counter which trade at deep bargains,” Softlogic said.

With limited downside risk expected, DNH Financial advised investors to take advantage of the robust domestic economics and corporate fundamentals to buy into counters with sustainable financial attributes.

“While equity investors have been hit relatively hard over the past couple of months following a series of events which has taken investor attention away from the strong corporate performance of several blue chip heavyweight and middleweight counters, we believe the window to invest is now open for those willing to adopt a selective approach,” it said.

“We believe that the market could now be entering a pivot point ahead of the year end which may lead to a likely re-rating. However, stock selectivity will determine the winners from the losers,” DNH emphasised.