The Sunday Leader

Three Stocks Make 88% Of Turnover

Dr. T. Senthilverl and Merril J. Fernando

If Thursday saw the bourse making its lowest turnover for the year to date, then on Friday it made its highest turnover after a lapse of 10 days.
Turnover on Friday amounted to Rs. 1.3 billion; aided and abetted by Ceylon Tea Services (CTS) which contributed to 74.6% of the day’s turnover with Rs. 994.8 million. The seller of CTS was Dr. T. Senthilverl, while the buyer is believed to have had been Merril J. Fernando and connected parties.
Other noteworthy contributions came from HNB (Rs. 100.3 million) and JKH (Rs. 83.1 million), effectively making up 88.4% of Friday’s total turnover. The day returned a nominal net foreign inflow (NFI) of Rs. 13.9 million, taking up NFIs for the year to date to Rs. 22.5 billion.
The ASPI Friday over Thursday gained by 0.48% to  5,876.66 points and the S&P SL 20 Index by 0.54% to 3,240.63 points. These gains were made possible by JKH, the market’s largest capitalized stock, seeing its share value gain by 2.27% to Rs. 225 on  share volume (SV) of 370,501; while Nestle, its  third largest capitalized stock saw its share value increase by 1% to Rs. 2,131 on a nominal  Rs. 1.4 million turnover and on an SV of 642.
However, CTC, the market’s second largest capitalized stock saw its share value decline by 1.17% to Rs. 1,128.60 on a Rs. 107,166.70 turnover and an SV of 95.
The movement of market indices is correlated to total market capitalization (market cap.). So when market cap. increases, so do indices. Market cap., Friday over Thursday increased by Rs. 11.7 billion (0.5%) to Rs. 2,444.9 billion. Market cap. increases when share prices increase.
As stocks such as JKH, CTC and Nestle have a greater bearing on market cap., those stocks are influencers of market indices. For instance as at Friday, the value of JKH’s market cap. to total market cap. comprised 9.64%, that of CTC (9.15%) and Nestle (4.96%).
Meanwhile the lowest turnover the bourse has returned for the year to date was Rs. 114.9 million, while on December 17 it returned a Rs. 1.3 billion turnover, equivalent to that of Friday’s.

18th Lowest
Nevertheless, at the beginning of the week on Monday (December 23), the Colombo stock market recorded its eighteenth lowest turnover for the year to date with a figure of Rs. 267.8 million, but the upside was a Rs. 83.10 million NFI.
While the lowest was Rs. 114.9 million and the second lowest Rs. 179.9 million made on December 11, the third to the seventeenth lowest turnover figures were: Third lowest: Rs. 191.7 million on July 17. Those were followed by Rs. 193.48 million on November 25, Rs. 197.44 million (November 11), Rs. 197.44 million (November 11), Rs. 201 million (June 26), Rs. 220.9 million (November 5), Rs. 228.2 million (July 10), Rs. 233.3 million (October 14), Rs. 234.3 million (November 15), Rs. 239.3 million (September 6), Rs. 241.9 million (July 11), Rs. 246.4 million (December 24),  Rs. 254.35 million (July 9), Rs. 259.6 million (July 18) and Rs. 265.9 million (June 28).
JKH, the market’s biggest capitalized stock, saw its share price weaken by 0.63% Monday over its previous closing price (ie on Friday, December 20) to Rs. 221.60 on a turnover of Rs.1.2 million; while CTC, the market’s second largest capitalized, saw the value of its share price fall by 1.40% to Rs. 1,128 a share, whilst contributing an infinitesimal Rs. 182,645 to Monday’s turnover on a share volume of 160.
The movement of market indices is directly related to the movement of market cap. as shown aforesaid, in that when the share value of a particular stock increases or decreases, so does its market cap. and, ipso facto also  the value of total market cap. as a result.

JKH and CTC, because they are the market’s largest and second largest capitalized stocks, coupled with their heavy weightage on market cap., the movement of their market cap.s  therefore has a direct bearing  on overall market cap., and hence  on its indices. So even with the tinkering of only a few shares of such high value stocks, ie of their price values, it’s possible to create an impact on market indices.
The market regulators, Colombo Stock Exchange (CSE) and Securities and Exchange Commission (SEC) should give thought to such matters in the New Year to prevent price manipulation that may be taking place this way, for the greater good of the investing public.
Perhaps, one way that this may be done is to restrict controlling interest of a stock to a maximum of 51%, whilst having the balance as a public float.
At least one multinational company (MNC)has done that, why cannot the minions follow?
This would ensure greater liquidity in the market and also minimize distortions as was witnessed on Monday.
Nevertheless, the biggest contributor to Monday’s turnover was Commercial Bank (Com Bank), the market’s fourth largest capitalized stock with Rs. 66.1 million. That was followed by Hayleys (Rs. 47.1 million) and HNB (Rs. 44.2 million). These three stocks were responsible for 58.8% of Monday’s turnover.
Meanwhile the market made its fourteenth lowest turnover for the year to date with a figure of Rs. 246.4 million on Tuesday.
Among the main contributors to Tuesday’s turnover was Com Bank with Rs. 61.6 million, Abans Finance (Rs. 48.1 million) and Blue Diamonds (Rs. 47.4 million).
With these three stocks alone contributing to 63.8% of the day’s turnover, is also an indication that the market lacks breadth, depth, height and length, exposing it to possible manipulation.

Nestle, the market’s third largest capitalized stock saw its share price gain by 0.01% to Rs. 2,111.30 on a share volume of a mere five, contributing a measly Rs. 10,595 to the day’s total turnover.
As the market’s largest capitalized stocks such as JKH, CTC and Nestle have a strong bearing on market indices, it may be easy for alleged manipulators, by trading in a nominal quantity of such shares, not only to change the value of such stocks, but also to force a bearing on market indices as a whole.
Therefore, the CSE and SEC should draw up rules, if they haven’t had already done so, to prevent such purposeful distortions.
While everyone has a right to buy and sell shares, a tab should however be kept to ascertain whether such distortions have a pattern, and if so, then investigations will need have to be launched for possible manipulation, to protect the integrity of the bourse and therewith rebuild investor confidence, hitherto shattered, due to manipulations having had gone unchecked.
However the market experienced a Rs. 99.96 million NFI at Tuesday’s trading.
“Foreign funds have been investing in the market, while at the same time some have had exited/sold during the course of the year,” the sources said. Despite the holiday season, some fund managers may yet be active, they said.
The ASPI fell 0.01% over its previous day’s close to 5,845.93 points while the S&P SL 20 gained by 0.03% to 3,225.13 points at the end of Tuesday’s trading.
JKH and CTC, the market’s largest and second largest capitalized stocks saw their share prices fall, with that of JKH declining by 0.18% to Rs. 221.20 and CTC by 0.16% to Rs. 1,126.
Wednesday December 25 was a Christmas holiday for the bourse.
The bourse made its lowest turnover for the year to date with a sum of Rs. 114.9 million at Thursday’s (December 26) trading, data showed.

Meanwhile the lowest it recorded last year was Rs. 91.6 million, ie on July 2, 2012; second lowest: Rs. 101.3 million on December 24, 2012 and third lowest: Rs. 115.9 million (November 26, 2012), market sources told this newspaper.
The lowest turnover it recorded in 2011 was Rs. 348.9 million, which was on December 22, 2011.
“Those were the boom years, they said; referring to the “pump and dump” era, where allegedly a group of manipulators acting in concert used to “take-up” junk stocks and “dump” it on unsuspecting investors who were misled in to thinking that there was “gold” in such stocks, only to realize too late, that they have had bought some useless stocks at exorbitant prices, which they are unable to dispose of.
Sources said that part of the reason for the dismal situation facing the stock market is that the regulators, ie the CSE and the SEC not taking action against such miscreants.
In related developments, in 2010, the lowest turnover the bourse experienced was a figure of Rs. 538.8 million on March 22, 2010, which was even better than its 2011 performance.
However, in 2009, the year that Sri Lanka won its 26 year old war against Tamil terrorism on May 19, 2009; the lowest turnover it experienced that year was a sum of Rs. 18.5 million on January 9,2009; the day after the founder editor of this newspaper Lasantha Wickrematunge was killed, in a yet to be solved murder.
The second lowest turnover the bourse made that year was Rs. 27.7 million on April 15, 2009;  third lowest: Rs. 37.7 million (March 11,2009);  fourth lowest: Rs. 45.5 million (January 12, 2009); fifth lowest: Rs. 46.4 million (April 6, 2009) and sixth lowest: Rs. 46.8 million (January 7,2009).
When this reporter asked market sources whether the allegation made by IMF’s former Resident Representative Dr. Koshy Mathai, that the stock market was plagued by weak regulation and regulators was true (see the business pages of last week’s The Sunday Leader newspaper)?, the sources answered in the affirmative.
The holiday season, poor quarterly earnings for the quarter ended September 30, 2013 and issues of governance are among some of the other key factors affecting the performance of the bourse.

Pyrrhic Gains
Nevertheless market indices made pyrrhic gains at Thursday’s trading, with the ASPI increasing in its value by 0.04% over its previous day’s close to 5,848.49 points. But the S&P SL 20 fell by 0.06% to 3,223.12 points.
Indices made gains on the strength of CTC, the market’s second largest capitalized stock, seeing its share price increase by 1.40% to Rs. 1,142 a share on a low volume of eight shares, whilst contributing a mere Rs. 246,963.91 to Thursday’s total turnover.
Perhaps, if the regulators mandate that the minimum public float should be 49%, like what another MNC has voluntarily done, such distortions/alleged price manipulations may be avoided.
Meanwhile JKH, the market’s largest capitalized stock, saw its share price decline by 0.54% to Rs. 220, whilst contributing Rs. 2.8 million to the day’s turnover.
In related developments, Com Bank, the bourse’s fourth largest capitalized stock, contributed to more than half of Thursday’s turnover with a figure of Rs. 61.1 million, thereby also helping the market to record an NFI of Rs. 54.1 million.
Despite the seeming doom and gloom scenario, what has been positive has been consistent foreign buying of Com Bank shares in the first three days of trading last week.

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