Sri Lanka Newspapers 10/02/2012

Bloodshed continues on bourse for seventh day
* Foreign bargain hunting a saving grace

The Sharp downturn on the Colombo bourse continued yesterday for the seventh day running although brokers said that bargain hunting by foreigners was a saving grace.

Turnover at Rs.870.8 million was slightly up from the precious day’s Rs.868.7 million, with both indices down sharply – the All Share by 125.26 points (2.30%) and the Milanka by 94.65 points (2%) with 26 gainers hopelessly outpaced by 186 losers.

"JKH continued to be the largest traded counter with continuing foreign interest evident in this stock," brokers said. ``Three crossings at Rs. 165 accounted for most of the shares transacted.’’

The share closed Rs.1.30 down to Rs.164 with nearly 1.3 million shares traded done between Rs.163 and Rs.166 generating the day’s top turnover of Rs.207.1 million.

Some large parcels of over 100,000 shares were crossed at Rs.165 with smaller quantities traded lower, a broker said.

Commercial Bank announced a scrip dividend as well as a cash dividend of Rs.1.50 per share with dates to be notified later. The scrip dividend to be issued by the capitalization of reserves will be one new share for every 56.33 voting shares held and one new share for every 47.22 non-voting shares. At Wednesday’s closing price of a scrip dividend would be worth Rs.2 per share.

ComBank, despite this announcement, closed 40 cents down at Rs.101 with slightly over 1.7 million shares traded between Rs.100.60 and Rs.101.90 generating the day’s second largest turnover of Rs.72.3 million. A crossing of 400,000 shares at Rs. 102 was among the trades.

NDB was among the few stocks on the market traded in some quantity to gain, closing 70 cents up at Rs.124 on nearly 0.3 million shares done between Rs.123.40 and Rs.126. One parcel of 235,500 shares was traded on the floor at Rs. 122.50, brokers said.

CTC closed flat at Rs.490 on 67,500 shares while Browns dropped 10 cents at Rs.165 on nearly 0.2 million shares done between Rs.161 and Rs.171.

ERI lost 90 cents to close at Rs.23.20 on a million shares, Ceylon Leather was down 10 cents to close at Rs.100 on nearly 0.2 million shares and Swarnamahal down 10 cents to close at Rs.161.50 on 0.1 million shares.

Among stocks that closed up and showed some volume were Colonial Motors up Rs.3.40 to close at Rs.380 on 42,100 shares and Aiken Spence Hotels up Rs.2.90 to close at Rs.64 on nearly 0.2 million shares.

Brokers said that price declines on index heavy illiquid counters tended to push the indices down citing Bukit Darah, the Carsons parent, which lost Rs.48.70 to close at Rs.900 on 2,300 shares as an example.

Brokers also said that local traders were forced to the sidelines by rising interest rates.

`It was another bloodbath,’’ one broker commented. ``Sentiment is still negative.’’
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*CB to allow market determine exchange rate, to intervene only to settle oil bills
*Dealers say Rs. 117 to Rs. 120 against dollar a benchmark rate
*Import duties on luxury items will have to be hiked

Scrambling to avoid a balance of payments crisis the Central Bank yesterday removed the exchange rate band allowing the exchange rate to be determined by market forces, only intervening to settle oil bills, dealers said as the rupee had its steepest fall against the dollar for the first time in years.

On Thursday, the rupee fell to around Rs. 115.70/90 but made some ground and closed at Rs. 115.20/30 against the dollar, falling by more than one rupee after the Central Bank stayed away from the foreign exchange market.

"The Central Bank has removed a trading band for the exchange rate and we did not see any intervention today, accept for a few hours in the morning" dealers told The Island Financial Review yesterday.

The Central Bank intervened in the market selling dollars when the rupee fell 30 cents to the dollar taking the exchange rate to Rs. 114.60 last morning. Thereafter, the Central Bank stayed clear for the rest of the day. Around Rs. 8 billion was pumped into the system yesterday as rupee liquidity fell due to the dollar sales.

"The Central Bank says it would only intervene when there is demand for dollars to pay oil bills and that the market would be allowed to determine the rate. However, we believe the Central Bank may want to keep a benchmark rate in view, in order to prevent wide fluctuations, this could be anything between Rs. 117 to Rs. 120 against the dollar," a dealer said. Other dealers said it was difficult to speculate as to where the Central Bank would want the exchange rate to be.

"But it is obviously clear the market would not be entirely free to determine the rate because this would cause too much fluctuation and steeper fall of the rupee which not going to do the economy any good," a dealer said.

Central Bank Governor Ajith Nivard Cabraal has said the bank would no longer defend the exchange rate at a particular rate but intervene to cover oil bills. He said the market could determine its own rate.

Analysts said the Central Bank might have to take measures to curb the widening trade deficit as it drove down reserves in trying to defend the exchange rate.

They pointed out that the government may soon have to hike import duties of luxury goods in order to contain the widening trade deficit.

The Central Bank had hiked policy interest rates by 50 basis points and slapped an 18 percent ceiling on bank credit growth. This is also expected to contain demand for imports.

The trade deficit for the period January to November 2011 more than doubled, expanding 111.3 percent to US$ 8.8 billion from US$ 4.18 billion a year earlier, as export growth was outpaced by the growth of imports.

US$ 1.56 billion was used up from the reserves to artificially prop up the rupee during the four month period July to October 2011. According to dealers, more than US$ 1 billion has been sold to-date since the rupee was depreciated by 3 percent in November 21. By end November 2011 reserves stood at US$ 6.2 billion, down 30.6 percent from US$ 8.1 billion in July, with the borrowed component now becoming more significant as the reserves diminish, shrinking the comfort zone. Government debt stood at US$ 4 billion end November.

"The Central Bank should have done this last November," a dealer said.

On the positive side, dealers said foreign investments could pick up later this year which would then put pressure on the rupee to appreciate against the dollar.

"India had depreciated its currency last year but with investments returning, that currency is now making gains against the greenback. Perhaps we could expect the same, because with interest rates expected to increase, investors may be attracted by the gains. The bond market has a lot of room to accommodate these investors and the stock exchange going through a slump may also be an interesting investment proposition to some," a dealer said.
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