Heavy retail play on penny stocks
View(s):The Colombo Stock Exchange (CSE) has witnessed heavy retail play over the past few weeks on penny stocks.
Analysts called it the ‘herd instinct’ and noted that retailers are comfortable with trading in shares below Rs. 10. These shares are termed as penny stocks.
Atchuthan Srirangan, Assistant Manager – Research at First Capital told the Business Times that low interest rates are pushing retailers to the CSE. Maturing fixed deposits don’t fetch good interest rates in the current environment. Many traders are investing some money off their mature fixed deposits in the market, an analyst noted.
He said that retail activity is high and more investors are going into small stocks, thereby driving the stock market.
However, there is little cause for alarm as was in 2011–2013 era. “Retailers are on fire but now buying stocks on credit isn’t encouraged. “Now stockbrokers are careful to trade with upfront money,” the analyst added.
Also the CSE saw some 63 per cent increase in Central Depository System (CDS) account openings since the digitalisation of the end-to-end operations of the market on 17 September, as of early this month. “Now these account holders are also trading,” another analyst noted.
All the top gainers on Monday were penny shares. RIL Property, Renuka Agri, Ceylon Tea Brokers, Asia Siyaka, Raigam Salterns, Tess Agro, Singhe Hospitals, Lankem Development, Piramal Glass, Mackwoods Energy were all trading below Rs. 10.
Analysts said that the local manufacturing businesses are expected to benefit from the reducing global base-raw material prices in the future, but the concern is the sharp depreciation of the Sri Lankan rupee which will offset the potential gain from such a situation. Healthcare will also see a boost, they said noting that retailers likely bought the affordable Singhe Hospitals on this sentiment. The agro firms, firms in the power sector will do well boosted by the domestic aggregate demand. The tea industry’s decent performance has got retailers betting on tea related firms.
Piramal’s July-September quarter saw high demand for packaged food. This resulted in a steep rise in glass jar demand due to panic buying by households. There were higher sales of food jars in the domestic segment during this time, the company said. Demand for pharmaceutical and agro industries had ales seen a rise. The announcement saw a large retail interest in the share.
(DEC)