Bourse’s Volatility Here To Stay

The bourse on Friday’s trading, on the back of foreign interest in blue chip John Keells Holdings plc (JKH) and local retailer driven interest in second tier stocks made a modest 8.10 point (0.14%) gain on the benchmark ASI over that of its previous day Thursday’s close, while the more sensitive MPI fell sharply by 23.75 points (0.43%) on a Rs. 1.4 billion turnover.
The stock market registered a Rs. 192.15 million net foreign inflow (NFI) on the back of a Rs. 504.71 million foreign purchase (FP) figure, a market source told this newspaper.With foreign hedge funds too entering the market, unlike previously where only long term funds showed an interest in the Colombo bourse,  there is also a lot of foreign trading activity going on now unlike in the past, hence the reason behind the low NFI figure compared to the total FP figure for the day, the source said. Meanwhile the stock market which fell sharply by a total of 119.95 points (2%) on the  ASI and by 141.67 points (2.5%) on the MPI on consecutive days of trading on Tuesday and Wednesday over that of Monday’s close, recouped part of these losses on Thursday, on the back of buying pressure once more returning to the bourse.As a result the ASI gained by 52.83 points (0.90%) and the MPI by 69.35 points (1.26%) over that of Wednesday’s closings on a Rs. 941 million turnover.
“The market will go through with these cyclical effects of ups and downs, making gains for a few days and then falling and afterwards recouping; some investors will lose their money, but it’s still sustainable,” another source said. He said that other than blue chip JKH and Dialog, the main drivers on Thursday were second tier stocks. Meanwhile the biggest contributor to the day’s turnover was Dialog (Rs. 52 million), followed by Nation Lanka (Rs. 50 million) and Lanka Hospitals (Rs. 36 million).
The top five gainers on Thursday were Kandy Hotels, SMB Leasing (non voting), Ceylon Printers, Singalanka and Lanka Ashok (stocks that may be considered second tier), according to stock market data.
Certain stock brokers are also behind this “pump and dump” game, he alleged.
The volatility will continue.
Meanwhile the bourse, like Humpty Dumpty, finally did have that steep fall at Tuesday’s (September 18) trading, with the ASI falling by 58.28 points (0.98%) and the MPI by 87.45 points (1.55%) on a Rs. 1.8 billion turnover, after making gains in the previous days.
And this fall continued the following day Wednesday as well, with the ASI declining by 61.67 points (1.04%) and the MPI by 54.22 points (0.98%) on a Rs. 1.2 billion turnover.
However that may be, the stock market, since the removal of Securities and Exchange Commission (SEC) Chairman Thilak Karunaratne last month, has, since the beginning of this month to date (September 21)  seen the ASI gain by 795.92 points (15.6%) and the MPI by 748.26 points (15.7%) on the back of share price increases made by several obscure stocks which valuations such as profits made and earnings per share do not justify such price surges (see also the lead story on the business pages of this publication’s last week edition). Both of these indices closed at 5,910.07 and 5,504.31 respectively last week.
To quote excerpts from that article which mainly revolved round an interview this reporter had with a stock market stakeholder, it said;  “….In an environment where liquidity is tight and interest rates are rising, there is seemingly no justification for the bourse to make gains when the fixed income market is more appealing,….
…It is a case of buy-sell, buy-sell, no one is holding on to stocks,….It’s akin to a stone rolling down the hill which gathers momentum as it goes down,…
But when profit taking overtakes the bourse and when the selling starts, there will be more sellers than buyers,….That’s when the market starts to go on a tailspin….”
One wonder’s whether Tuesday’s and Wednesday’s downturns were the harbinger of that tailspin?
At the beginning of last week on Monday (September 17), the bourse then too made a Rs. 1.8 billion turnover, though recording a Rs. 31.46 million net foreign outflow on a Rs. 273.83 million foreign purchase figure.
The  ASI gained by 42.19 points (0.71%) and the more sensitive MPI by 42.19 points (0.75%)  over the previous day’s closing on the back of the top gainers being second tier stocks such as GS Finance, Citrus Kalpitiya, Browns Beach, City Housing and Paragon.