Price tag of Colombo’s correction now at Rs. 117 b

The so called “correction” in the Colombo Bourse has seen Rs. 117 billion worth of value wiped off since market’s peak on 2011 Valentine’s Day.

With yesterday’s dip of near 2%, one of the sharpest in recent weeks, the All Share Index (ASI) year to date gain has been dented to 12.21%, down 31% from the 14 February peak of 17.72%. ASI on 2011 Valentine’s Day was 7,812 whilst yesterday it was at 7,445 down 4.6%. The market capitalisation yesterday was Rs. 2.483 trillion, down by Rs. 117 billion from Rs. 2.600 trillion.

What is more alarming is that the Milanka Price Index (MPI) which helps gauge how the blue chips have fared, for the first time yesterday crossed the negative 1%  threshold to finish at a negative 1.81% year to date.



“The ASPI dipped more than 100 points amidst a session of heavy selling across the board. Low turnover suggests the large investors may be observing in the sidelines,” noted NDB Stockbrokers.

“Selling pressure continued to drag the indices down while activity levels remained moderate during the day,” added John Keells Stock Brokers.

Turnover fell below the recent week average of between Rs. 4.3 billion and Rs. 2.5 billion to Rs. 1.9 billion.

Diversified (due to John Keells Holdings) and Manufacturing (due to Lanka Floortile and Royal Ceramics) sectors were the highest contributors to the market turnover while both sector indices decreased by 1.60% and 1.18% respectively.

Premier conglomerate John Keells Holdings made the highest contribution to the market with a crossing of 1,000,000 shares at Rs. 285. The share price decreased by Rs. 3 (1.05%) and closed at Rs. 282.10. Foreign holding of the company decreased by 1,000,000 shares.

Ceylinco Insurance and HNB attracted investors despite the negative market momentum. Subdivision of HNB is to take effect from 31 March 2011.

Illiquid counters Guardian Capital Partners, Carsons Cumberbatch and Bukit Darah which recorded rapid gains in the recent past were the main negative contributors to the indices.

John Keells Stock Brokers in its 2011 Sri Lanka Market Strategy document noted that recent upward movement in the ASPI was largely a result of strong retail and local HNI participation which has seen significant price movements in second tier and illiquid stocks not necessarily reflective of broad based healthy buying interest. Furthermore the more liquid MPI index that contains most heavily traded large cap counters has increased by just 2% this year (at the time of compiling the report which was last month) and is still 8.43% off its peak in early October 2010.

It also said sustained local retail buying interest in the market has pushed near term market multiples to 15.2x FY12E earnings, with aggressive buying on selected mid cap and speculative trading on illiquid counters having pushed the indices higher at an excessive pace thus far this year warranting a modest correction.

However JKSB pointed out: “We remain bullish on the medium to long term earnings growth prospects of construction related Manufacturing, Banking and Leisure group stocks. A medium term outlook of sustainable normalised earnings of approximately 25% should see the index trend higher over the medium to long term.”

Though welcoming a correction other analysts expressed concern over a sudden sharp dip. They argued that a gradual correction was more advisable and healthier for the market especially at a time when the market is in a development mode with new investors flocking to subscribe to IPOs.

It was also opined that given the attractive Price Earnings over a three year horizon the market still offers a wider selection of basket of good stocks.

A Reuters report said that market dipped for a second session to near four-week lows on forced selling by brokers in line with a directive by the Securities and Exchange Commission (SEC).

Sri Lanka’s SEC has directed all stockbrokers to collect all debts and stop credit transactions by June 30 and reduce their current debtors’ positions by at least 50 percent by

March 31.

The bourse has still been Asia’s best performer with a 12.2 percent gain in 2011 after being in the region’s top spot with a 96 percent return last year.

The bourse is trading at a forward price-to-earnings (P/E) ratio of 16, one of the highest among emerging markets, compared with 12.9 in Asian markets and 11.9 in global emerging markets, Thomson Reuters StarMine data showed.

Meanwhile the rupee closed firmer at 110.05/10 a dollar from Monday’s close of 110.25/30 as exporters converted dollars expecting further appreciation of the rupee and on stock-related dollar inflows, dealers said.