Financial Times

Bull takes a breather in stock market

Colombo's stock market took a breather towards the end of last week as the buying frenzy abated with savvy investors taking profits and brokers saying the correction might extend to this week as well.

But the positive sentiment and the absence of negative news is likely to result in a rebound with listed companies reporting record profits and the government expected to announce better-than-expected economic growth data this week.

Brokers attributed the recent bull-run to a combination of factors - the belief that the Eelam war will not resume, the substantial aid pledged at the Tokyo donor conference, much of which would be for infrastructure development, the drastic reduction in interest rates and the tax amnesty.

Some analysts believe 15-20 percent of the new money driving the market was black money.

Brokers said they believed the market was a "bit overheated" and that the correction begun last week would continue but that there would be no crash.

"There might be further profit taking but no large fall in the indices," said Nilushi Creasy of HNB Stockbrokers. "There's no bad news from the political arena or the peace process.

"So far what we've seen is . . . the moment the market starts coming down everybody starts picking up shares. The market was undervalued. Now it is fairly valued."

HNB's Hasitha Premaratne said the market's future direction would depend partly on the resumption of peace talks.

The market had already exceeded the 1062-mark on the ASPI, which HNB Stockbrokers had forecast would be reached by year's end. Channa Amaratunga of Asia Capital said last week's downturn was largely a result of forced sales by retail investors having to meet payments.

"The downturn was inevitable," he said. "There's bound to be healthy profit taking now and then."

Foreigners have been relatively quiet in the bull-run but have been picking up stakes in very liquid, big firms like John Keells Holdings, NDB and DFCC.

Turnover last Friday was around Rs. 358 million with foreigners accounting for Rs. 48 million of purchases and Rs. 20 million of sales.

"From a foreign perspective the market is still quite small," Amaratunga said. "Liquidity and turnover are the main criteria."

He said the positive sentiment driving the market is based on the belief that the peace process had advanced too much for a return to military hostilities.

"The only thing that could bring down the market significantly would be a return to actual war," he said. "The market has discounted delays in the peace process as it believes there's too much international pressure on both sides not to return to war."

Rajeeva Bandaranayake of the Colombo Stock Exchange said it was largely local institutions and individuals who are now driving the market.

Total turnover for June was the highest-ever monthly turnover - over Rs. 9.8 billion, exceeding the previous record of Rs. 5.5 billion in February 1994 while the daily average between January and June is also the highest ever - Rs. 192 million.

The All Share Price Index is up 29 percent and the Milanka up 49.8 percent so far this year, double the increase last year.