Rs. 44 b in value wiped out from Bourse

The Colombo stock market suffered one of its sharpest falls by over 2% yesterday, wiping out Rs. 44 billion in value, largely linked to forced selling on margin calls, whilst overall lack of confidence on equity investments had a say as well.

The All Share Index closed 118 points down to close at a 17-month low and Milanka Index by 105 points. This saw the ASI’s year-to-date negative return crossed the 6% mark to languish at 6.77%. Reuters described Colombo as the worst performer among Asian markets.

MPI’s dip was almost at 8%. Market capitalisation, which was Rs. 2.116 trillion on Friday, had plunged to Rs. 2.072 trillion yesterday. Turnover was a satisfactory Rs. 827 million, above Friday’s Rs. 742 million.

“The overall market recorded a decline on both indices at the end of days trading. Selling pressure continued as investors keep losing market confidence,” New World Securities said. “This is largely due to a few investors staying away from the market due to developments that occurred during the previous week,” it added.

“Margin calls have also continued due to lower prices. But many overvalued share’s prices have come down, showing positive signs on price to earnings, and it would be an ideal opportunity to look into these stocks,” opined New World Securities. NDB Stockbrokers said both indices continued to tumble with forced selling taking place.



It said indices dipped despite the index heavy JKH showing some resistance.

The Bank, Finance and Insurance sector was the highest contributor to the market turnover (due to Swarnamahal Financial Services accounting for Rs. 82 million) and the sector index declined 2.89%. The share price of Swarnamahal Financial Services increased by Rs. 10.30 (11.53%), to close at Rs. 103.90.

Diversified sector became the second highest contributor to the market turnover (due to John Keells Holdings – Rs. 47 million) and the sector index declined by 1.03%. The share price of John Keells Holdings improved by Rs. 0.70 (0.43%) to close at Rs. 164.

Waskaduwa Beach Resort (Rs. 56 million) and Ascot Holdings (Rs. 40 million) were also among the top contributors to the market turnover. The share price of Waskaduwa Beach Resort closed at Rs. 11 while the share price of Ascot Holdings closed at Rs. 150.

Arrenga Capital said the market registered the biggest drop in two months as the majority of the stocks sank into red, whilst deeper losses were being made in the speculatively lot and several illiquid counters.

“Encouragingly, the fundamentally-backed counters showed good resistance, whilst selling pressure on mostly retail driven counters was seen dragging the indices down sharply,” it added.

Following the continuous dip, it could be observed that most of the speculative favourite stocks have now been reaching back towards their real values. Hence, the loss in portfolio values would be felt harshly on the investors who got into the rally when these stocks were at their peaks.

“Hence, we reiterate not to fall into short-term rallies, but to become a value seeker, which would give investors the holding power even in a bear market,” Arrenga said.

DNH Financial described yesterday’s mayhem as “merely a wave of panic selling” as the bourse opened the week with stocks declining across the board.

“With the Sri Lankan economy being arguably amongst the most robust in the world, we are not unduly worried. We believe that yesterday’s performance in no way indicates the growth potential of the bourse which we believe will generate strong double digit growth in the medium to longer term,” DNH added.

It said that despite being one of the fastest growing economies in the world with sustainable GDP growth of 8%+, the Sri Lankan bourse has surprisingly become the worst performing equity market on an YTD basis falling 7.3% while many global economies with structural weaknesses have traded in the black this year, recording almost double digit performances.

“Even though the bourse may continue to lose further momentum in the immediate term, we advise investors to carefully select blue chip stocks on price weakness as we would like to significantly stress that there appears to be no structural problems in the bourse and that it is likely to see an inflection point sooner than later,” DNH emphasised.