Politics bites off Rs. 126 b from stock market value in two days

•  Colombo Bourse falls into oversold region

•  ASI slipped by 295.08 points or 4% and S&P SL20 by 3.6%

•  Equities remain

attractive as market PE drops from 14.7x to 14.1x within last two days
Shocking political developments and apparent instability have wiped off Rs. 126 billion from the Colombo stock market during the past two market days.
The market capitalisation of the Colombo Stock Exchange (CSE) on Thursday was Rs. 3.199 trillion, whereas yesterday it had dipped to Rs. 3.073 trillion, reflecting a staggering Rs. 126 billion loss in value.
On Friday, when the defection of SLFP Secretary General and Health Minister Maithripala Sirisena to become presidential candidate of the common Opposition shocked the country, the market lost Rs. 55 billion and yesterday a further Rs. 71 billion was wiped off.
The loss would have been greater as the fall in early morning trading was steep, but renewed buying brought stability and recovery.
“Political uncertainties pushed the equities market deep into the red on Monday as the ASI witnessed the highest intra-day drop in 15 months,” Lanka Securities said.
The All Share Index lost 226.31 index points (3.1%) in the morning session but recovered during the latter half and closed at 7,235.25, shedding 166.37 index points or 2.25%, the broker added.
The 20-scrip S&P SL index slipped by 82.32 index points or 1.99% to close at 4,044.94.
“During the last two sessions, the ASI slipped by 295.08 index points (-3.9%) while the S&P SL20 index declined by -3.6%,” Lanka Securities said.
With this decline, market PE dropped from 14.7x to 14.1x within last two days, it added.
Despite the drop, the ASI remains positive, having given a 22% year-to-date return and the S&P SL 20 Index up 24%.

Rupee forwards end weaker on political uncertaintyReuters: Rupee forwards ended weaker on Monday due to importer dollar demand, though moral suasion by the Central Bank prevented any fall, while political uncertainty weighed on the currency after the president declared snap polls. Former Health Minister Mithripala Sirisena said on Friday he would contest against President Mahinda Rajapaksa in the 8 January snap presidential poll. Since the poll announcement, six other legislators have defected. Dealers said the rupee is likely to remain weak due to the political uncertainty and rising seasonal imports. The spot currency ended steady at 131.00 per dollar. Three-day forwards, or spot next, which fell to 131.40 during the day, ended at 131.25/50, little changed from Friday’s close of 131.25/30 per dollar. Dealers said the Central Bank capped the three-day forwards at 131.25. The four-day forwards, active due to the Central Bank’s moral suasion, according to dealers, ended at 131.45/60 per dollar, compared with Friday’s close of 131.35/40. They said exporters and banks were reluctant to sell dollars on expectation the currency would weaken further. Overseas investors net bought Rs. 457.8 million worth of Government securities for the week ended 19 November, but they have sold a net Rs. 39.1 billion ($298.5 million) in the eight weeks through 19 November, data from the Central Bank showed.

Some analysts linked the bearish sentiments during the past two market days to fears over change of regime and what they perceived as an end to continuity of market-friendly policies. However, this fear was dismissed by others noting that a UNP-backed regime will be pro-growth, hence the sell off was unwarranted.  Independent analysts maintained that the market was reacting to neither of the possibilities but the dip reflects investor comfort zones have been challenged due to recent developments.
Yesterday’s price declines in counters such as John Keells Holdings (closed at Rs. 249.00, -1.7%), Carson Cumberbatch (closed at Rs. 426.20, -5.3%), Dialog Axiata (closed at Rs. 12.60, -3.1%) and Nestle Lanka (closed at Rs. 2,111.00, -2.1%) affected the index performance.
Out of 280 counters, 235 declined, 20 advanced while 25 remained unchanged. Cash map marginally inclined to 39% from 34%. 16 counters touched 52 week low price levels.
Foreign investors closed as net buyers for 13 days in a row with a net inflow of Rs. 100 m worth of equities. Foreign participation was 7%. Net foreign inflows were seen in Hemas Holdings (Rs. 41 m), Commercial Bank (Rs. 24 m) and Sampath Bank (Rs. 20 m) while net foreign outflow was mainly seen in People’s Leasing & Finance (Rs. 5 m).
Daily market turnover was Rs. 1.7 b. Laugfs Gas topped the turnover list with Rs. 391 m underpinned by a single crossing of 8.8 m shares at Rs. 43. The crossing represented 22% of the total turnover. Access Engineering and People’s Leasing & Finance were the next best contributors to turnover with Rs. 85 m and Rs. 56 m respectively.
Further, 0.3 m shares of Hemas Holdings changed hands in a single crossing at a price of Rs. 73. Aggregate value of crossings represented 24% of the total turnover.
Subsequent to the listing of new shares from the rights issue, Acme Printing & Packaging counter-declined to Rs. 11.20 during the day but managed to close at Rs. 11.90 (-4.8%).
Shares of Access Engineering, People’s Leasing and Finance and Union Bank were traded heavily during the session.
Most of the banking sector counters except Amana Bank declined during today’s trading session. Amana Bank closed at Rs. 5 without a change. Price declines were recorded in National Development Bank (closed at Rs. 250, -0.6%), Hatton National Bank (closed at Rs. 193, -3.0%), Commercial Bank (closed at Rs. 167.10, -4.5%), DFCC Bank (closed at Rs. 215, -2.7%), Sampath Bank (closed at Rs. 233, -0.6%), Nations Trust (closed at Rs. 94, -1.9%), HDFC Bank (closed at Rs. 65.10, -4.8%), Union Bank (closed at Rs. 24.80, -4.3%), Sanasa Development Bank (closed at Rs. 90, -2.0%), Seylan Bank (closed at Rs. 94, -2.1%) and Pan Asia Bank (closed at Rs. 23.50, -6.0%).
Reuters reported that Lankan stocks fell more than 3% to a four-week low as speculation that more ruling party legislators would cross over to the Opposition added to the political uncertainty and spooked investors.
After falling over 3% in early trade, the main stock index ended 2.25% weaker at 7,235.25, its lowest close since 28 October, and its biggest single-day fall since 28 August 2013.
“There was panic selling in the morning and margin calls also came on negative sentiment due to political uncertainty,” Reuters quoted Dimantha Mathew, Manager – Research at First Capital Equities Ltd., as saying.
“Nobody expected political uncertainty of this magnitude (and) the Opposition to be in full force with lot of defections, especially high-ranking Ministers.”
Already, seven legislators, including the Health Minister have defected from Rajapaksa’s ruling coalition.
Stockbrokers and research analysts said some retailers were selling their stakes on fears that a change in the political leadership could be highly volatile to the market, while others remained optimistic about the change.
“President Rajapaksa’s economic strategies were well received by the capital markets investment community and so if the status quo doesn’t change, the market trajectory also should not falter but continue with the growth trend,” Reuters quoted Danushka Samarasinghe, COO at Softlogic Stockbrokers Ltd., as saying.
“On the flip side, if expectation of the Opposition taking power is high on the back of promising better economic management, governance and transparency, the promise alone should bode well with the investment community and could propel further market growth.”
Continued foreign buying, low interest rates and hopes of better earnings pushed the Bourse into an overbought zone by 18 November, before it slipped on political woes. On Monday, the Bourse fell into the oversold region, Thomson Reuters data showed.