Ills That Ail Bourse
The bourse appears to have had got certain fundamentals right, like a low price to earnings ratio of 13.53 as at Thursday and a net foreign inflow of Rs. 23.6 billion so far for the year, but despite these positivisms it is yet to take off.
Instead, the market has succumbed to the seemingly unexpected, ie it has fallen, with the benchmark ASI since the beginning of the year to date having had declined by 1,145.78 points (18.9%) to 4,928.64 points and that of the more sensitive MPI by 869.48 points (16.6%) to 4,359.68 points.
Hussain Gani, CEO/director, TKS Securities, a stockbroking firm speaking to reporters last Friday (July 6) said that the stock market has now reached realistic levels, conveying the impression that it’s now ready to take off (see also the business pages of last week’s The Sunday Leader issue).
But since last Friday and up to the weekend the ASI has fallen by a further 37.13 points (0.7%) and the MPI by 23.52 points (0.5%) though the intensity of its falls appears to have had lessened.
For instance in the one week period from June 22 to June 29, ie from one Friday to the other, these two indices have had fallen by 73.78 points (1.5%) and 95.31 points (2.1%) respectively, ie at a far greater intensity than the week that immediately followed it (ie from June 29 to July 6).
So probably Gani may be right, the bourse may indeed be bottoming out, however that may be, on Monday (July 2) the market recorded its lowest turnover after a lapse of more than three years, a sum of Rs. 91.64 million, a figure lower than this amount was last seen on April 30, 2009, when the bourse recorded a Rs. 80.9 million turnover figure.
A stockbroker speaking to reporters recently said that the decline and the fall of the market coincided with the Government of Sri Lanka passing the controversial Expropriations Act last November, an Act which scares investors as no parameters have been indicated on what basis such state properties leased to the private sector should be taken over under this law, other than referring to such organisations as being underperforming.
A public quoted company has been taken over under this draconian law while another property leased out to an opposition politico has also been seized under this Act thus far. Among other properties listed to be taken over under this Act is Hilton Colombo, a multinational hotel chain and the Colombo Convention Centre leased out to a Singaporean conventions operator, though a source attached to the latter organisation told this reporter that the threat of taking over this convention hall has now been removed. However that may be, that is not the best way to go to attract foreign investments.
Another reason attributed to the downfall of the bourse by another stockbroker is rising interest rates which makes it more attractive to invest in the fixed income market rather than in the bourse. CEO/director NDB Capital Holdings plc Vajira Kulatilaka recently told reporters that investing in the bourse is high risk. (See also The Sunday Leader business pages of 24.6.12.)
Manipulators, with possible powerful political connections going unpunished and removing both the former Chairman and Director General of the Securities and Exchange Commission last year for going after these miscreants also do not help investors to have confidence on the Colombo Stock Market.
And last but not least, the abortive scandal involving National Savings Bank’s investment in the troubled The Finance Company plc where the latter’s shares were bought at a premium resulting in the former’s chairman’s (husband of the Chief Justice) resignation with no punitive action taken against him also do not lend credibility to the bourse.
Similar dubious investments which however have not been reversed or have gone unpunished involve the state controlled EPF and to a lesser extent by another state entity, ie the Sri Lanka Insurance Corporation, further help to add fuel to the fire. Meanwhile a Rs. 902.8 million average daily turnover during the period 1.1.12.-4.7.12., ie after removing a recent, extraordinary inter-company transfer of Rs. seven billion worth of shares may be misleading (if that transfer is included, then the bourse’s average daily turnover during this period rises to Rs. 969.6 million) as the bourse leading up to the Aluth Avurudhu week and to date, ie from April 9 to 4.7.12., a total of 57 market days, passed the Rs. one billion mark only once (except on that aforesaid exceptional share transfer day where turnover surpassed the Rs. eight billion mark), over Rs. 900 million only twice, over Rs. 800 million thrice, over 700 million only six times and over Rs. 600 million 11 times. Turnover on 5.7.12. and 6.7.12. were Rs. 323 million and Rs.368 million respectively.
On the other hand during the review period the bourse recorded “low” turnovers of between Rs. 200-300 million, no less than 21 times. A stockbroker attributed this situation to investors not having money. The Colombo stockmarket is generally dominated by retailers. And a number of these retailers have lost their money after being cheated by those aforementioned manipulators, he said. So these appear to be the causes for the disease and now it’s up to the authorities to treat them, and not its symptoms (!) if they are interested in once more reviving the fortunes of the bourse.