Sri Lanka Newspapers Friday 17/02/2012

Bourse surges strongly
* Big question is whether gains will be sustained

The Colombo bourse yesterday surged strongly with a 259.29 points (5.08%) gain on the All Share Index being among the steepest single day gains in memory, brokers said.

The Milanka too was up 179.22 points (4.10%) on a turnover of Rs.1.16 billon, down from the previous day’s Rs.1.2 billion, with 223 gainers leaving six losers trailing dismally behind.

"Overall sentiment improved considerably with the market supported by institutions like the EPF," a broker said. "With the marketing gaining strongly and portfolio positions improving margin calls too were near zero."

Aitken Spence was the day’s biggest business generator with a crossing of nearly a million shares at Rs.114 with the counter closing flat at that price on a trading range of Rs.113 to Rs.114.50 generating a business volume of Rs.118.8 million.

HNB followed gaining Rs.3.50 to close at Rs.145 on nearly 0.7 million shares done between Rs.142 and Rs.145. The trades included a crossing of 645,200 shares at Rs.142.

Swarnamahal where there was considerable retail play closed Rs.11.30 up at Rs.172.10 on nearly 0.4 million shares done between Rs.160.70 and Rs.172.40 while ERI was up Rs.3.60 to close at Rs.19.40 on slightly over 3.2 million shares done between Rs.15.90 and Rs.19.70.

"Both these counters saw retail and high net worth play," a broker said. "It was the same with HVA which was up Rs.3.40 to close at Rs.21.60 on nearly 2.4 million shares done between Rs.18.10 and Rs.21.60."

Commercial Bank was another banking stock which saw volume and a marginal 10 cents price gain to close at Rs.101 on nearly 0.4 million shares done between Rs.99.50 and Rs.101 while Seylan Bank gained Rs.7.50 to close at Rs.65.80 on nearly 0.5 million shares done between Rs.56.50 and Rs.65.80.

Brokers said that interest in banking stock was evident during trading yesterday and hoped that the gains seen during the day would be sustained.

Commercial Bank announced the dates for its forthcoming cash and scrip dividends which will follow the March 30 AGM with the final dividend of Rs.1.50 per share, XD from April 2 and payment on April 11.

The scrip dividend will also require shareholder approval at the AGM and will trade XD from April 2. 56.33 voting shares held will qualify for one new voting share and 47.22 non-voting shares for one new non-voting share under the scrip dividend announced on February 9.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=45419

Junk stocks come to the fore, casting doubts on rally

For the past two days the Colombo Stock Exchange has gone through a ‘textbook definition of a ‘bear market rally’ which is unlikely to be sustained as investors don’t seem to have learnt from past mistakes, with junk stocks coming to the fore once again, an analyst said.

"The extreme pessimisms that dictated play over the last few weeks helped ignite this rally on Thursday (Feb. 16). Throughout history bear market rallies have been strong and try to convince the market that the larger trend had changed. There is a possibility that the market can rally a bit more (today, Friday 17) especially in the morning and cool off later during the day.

It will be very interesting to see if we can close in the positive. We therefore advise clients who made risky bets over the last one or two days to book their profits early," Bartleet Religare Securities’ Stefan Juriansz said.

"Even though all stocks went up across the board, the resurrected speculators clearly proves that the market is not ready to change for the better and will continue to buy junk in such rallies. Sadly the "usual suspects" such as HVA, GREG and PAP resurrected from the grave and were the most traded counters the previous day as traders continued to refuse to learn from mistakes and ignored fundamentally sound companies."

Speaking to The Island Financial Review, Juriansz said an index of 30-odd junk stocks created by Bartleet Religare Securities had declined drastically over the past few months. "We thought it would be the end of it, but now the index has gained by 17 percent and this is not a good sign, it means this rally is false."

Last year, the Securities and Exchange Commission came under fire for implementing measures and launching investigations to contain the rise of these junk stocks, where prices have seen phenomenal increases although the companies themselves were not performing extraordinarily well to warrant such price movements.

However, one indication of sustainability in the current rally was the renewed interest in value counters, Juriansz pointed out.

"Technically the market seems to have defined the immediate support level for the ASPI as 5,000 and the current resistant level for the index is 5,450. If the market rallies towards this level, we could see selling coming into play," Juriansz, a Technical Analyst, said.

"Markets are a leading indicator and earnings are lagging indicators which is why fundamentalists believe that prices should reflect earnings which are "strong" for now. However the markets never lie and there is a possibility that earnings will soon start to reflect prices," he said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=45420

* Interest rates inch upwards on constricting rupee liquidity

The rupee gained further on Thursday (Feb. 16) against the greenback closing at Rs. 118.90/119.10 as investors and exporters brought their dollars into the market. Import demand during the morning session had driven the exchange rate to over Rs. 120/US$, as the Central Bank continued its policy of not intervening in the market, unless when huge oil bills were presented and huge inflows came in.

The rupee closed at Rs. 119.50/US$ on Wednesday as Bank of Ceylon was seen selling dollars in the market and dealers said it was unclear whether the sales were on behalf of the Central Bank. However, yesterday, dealers said no such sales or interventions took place.

"The foreign exchange market was driven purely by demand and supply," a dealer said.

"We believe that this would be the trend over the next few days where we could see the rupee make gains and then retreat against the dollar depending on supply and demand needs."

The Central Bank on Wednesday said the steep fall of the rupee was a temporary phenomenon and dealers said this was always expected after the Central Bank announced the rupee would be floated.

The bank said it would intervene to settle oil bills and absorb large foreign currency inflows. "This is because the market cannot handle these which would result in wide fluctuations which is not a very good thing," dealer said.

"We saw some investors bring in some dollars and exporters too were seen booking their positions. It seems they have realised that this is the range for the exchange rate, say between Rs. 118 and 120 to a dollar," a dealer said.

Since the exchange rate was floated, the rupee fell 5.7 percent to 120.10/30 to the dollar last Tuesday, but gained over the last two days, albeit swings both ways during the trading sessions.

The exchange rate was floated as the Central Bank reacted very late to an impending balance of payments crisis. It also increased key policy rates and introduced a ceiling on credit growth in a bid to curtail import demand. Fuel prices and electricity tariffs were also increased by the government for this very same reason. However, these necessary measures having come too late have had to be drastic and have caused an unnecessary shock in the economy.

Rupee liquidity continued to be tight and the Central Bank has to pump in Rs. 2.7 billion to help certain banks struggling to cover their positions. Interbank borrowing rates increased further yesterday; call market rate was up 8.79 percent from 8.77 percent the day before, the market repo rate inched up to 9.76 percent from 9.74 percent and the Sri Lanka Inter Bank Offered Rate reached 9.76 percent from 9.74 percent.

"Until we see more foreign inflows come in rupee liquidity will remain tight," a dealer said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=45421

Stocks soar on spirited support
■ASI gains by 5% as Bourse’s value swells by Rs. 96 b
■Brokers positive after fresh meeting with SEC
■EPF, private institutional and high networth investors active on attractive valuations

The Colombo stock market yesterday produced a major rebound gaining by 5% thanks what some described as “spirited support” whilst others emphasised it was largely due to all round buying on attractive valuations.

The Bourse’s value shot up by whopping Rs. 96 billion in its biggest ever gain reducing the gap of the massive Rs. 112 billion lost on Monday and Tuesday on account of margin calls, negative sentiments over volatile exchange rate and fuel price hike impact on the economy.

Continuing buying by EPF also boosted the market for the first time though the biggest fund’s activeness in the previous days failed rejuvenate weak hearts of ordinary investors. Broking community was also on a better mindset following a positive meeting on Wednesday with the Securities and Exchange Commission Chairman Tilak Karunaratne and his team. Analysts also said that Central Bank assurance with regard to forex market and rupee’s gain yesterday also boosted sentiments.

“The meeting that took place between the CEO’s of the stock broking houses and the SEC chairman ended with on a positive note and as a result market confidence has grown,” New World Securities said. However it also added that EPF, ETF and fund manager’s involvement in the market was seen and contributed to the days turnover.

Opposition parties were quick to pin the rebound to organised buying by EPF and coordinated action by the “players” in the market. Whilst there was all round buying, analysts however said that EPF was in the market aggressively early this week yet that failed to prevent the massive plunge. Furthermore despite presence of state heavyweights as well as active play by institutional and high net worth investors, the turnover being Rs. 1.1 billion may suggest that the market was less inclined on selling. Interestingly the single largest contributor to the turnover Aitken Spence (1.04 million shares traded for Rs. 119 million) wasn’t caused by ‘coordinated local play” but Aberdeen picking up bulk of the shares at Rs. 114 each.

As Daily FT reported, foreigners seize buying opportunities when there is blood in the market and there has been net inflow by non-nationals for the past week.

If the second largest contributor HNB (0.65 million shares traded for Rs. 93 million) too wasn’t EPF-linked as the major buyer was Captains who continue to favour banking stocks though was seen on the selling side of Commercial Bank yesterday.

On the other hand big stocks SLT (up 6%), CTC (5%) and JKH (2%) which made the highest contribution to the movement of the indices were sought after by private institutional investors.

However, analysts and brokers said EPF was collecting quantities as it has done since Monday especially with regard to counters such as Carsons, Dialog, CT Holdings and among its basket included Dockyard, Haycarb DIMO, Central Finance and Dipped Products. ETF too was active collecting Commercial Bank.

The rebound yesterday was also supported by sharp gains by second tier and speculative stocks. The bottom of the top five turnover contributors list comprised Swarnamahal, ERI and HVA Foods.

NDB Stockbrokers said speculative counters gained steadily during early trading which eventually led to gains across the board.

Bank, Finance and Insurance sector was the highest contributor to the market turnover (due to Hatton National Bank – HNB and Swarnamahal Finance – SFS) the sector index gained 5.30%.

The share price of HNB increased by Rs 3.50 (2.47%) to close at Rs 145.00 while share price of SFS gained Rs 11.50 (7.03%) to close at Rs 172.10.

Diversified sector became the second highest contributor to the market turnover (due to Aitken Spence) and the sector index increased by 3.13%. Aitken Spence share price closed flat at Rs 114.00. Foreign holding of Aitken Spence increased by 1,037,600 shares during the day.

SC Securities said the investors shifted gears as the negative sentiment turned positive resulting in aggressive buying.

Arrenga Capital said strong upsurge drove the indices into positive terrain with active participation by retail investors.

“The steep decline up to Tuesday was primarily on speculative counters where most values of stocks have returned to pre-bull run prices (in 2009). This resulted in speculative play throughout the day,” Arrenga said adding the positive investor sentiment led most counters to end on the green with only 6 counters closing on negative territory.

“We believe today’s upsurge lacked institutional and high net worth (local and foreign) participation, thus prudent investors should use these opportunities to book profits while accumulating on a downward trend. On a positive note, foreign inflows seem to be continuing although at a small level. We believe large and continuous net foreign inflows would be the catalyst to reverse the downward trend,” Arrenga added.

Swarnamahal Financial Services topped the speculative list returning to its upward trend as the counter recorded a 52-week high of Rs. 172.4 before closing the day at Rs. 172.1 (+7.0%). Retail investor favourite Environmental Resources Investments gained heavy buying interest as the counters surged 23.4% to close at Rs. 19.4 with 3.2 million shares trading. HVA Foods and Citrus Leisure returned with strong buying interest as the counters gained +19.2% and +23.8% closing at Rs. 21.6 and Rs. 37.5 respectively.

Agstar Voting, Non-Voting and Nation Lanka Finance [Warrants] were the debutants to the market and performed well. Agstar touched an intra- day high of Rs. 18.9 and closed trading at Rs. 16.9 whilst National Lanka gathered considerable investor interest gaining +1000% to close at Rs. 3.2.
http://www.ft.lk/2012/02/17/stocks-soar-on-spirited-support/