Bourse slumps amid panic selling, power cuts

By Nishel Fernando
The Colombo bourse yesterday plunged nearly 7 percent, with investors probably getting a grasp of the serious economic crisis unfolding amid over four-hour-long power outages, due to lack of diesel to generate electricity.
“The power cuts, which have now increased to four and a half hours and the Surcharge Tax Bill, which has reached Parliament, are together taking a big toll on the market. Basically, investors feel that earnings are going to be affected by this. They have begun to feel the economic crisis at home,” First Capital Research (FCR) Head of Research Dimantha Mathew told Mirror Business.

The market was halted twice for 30 minutes yesterday, as the circuit breakers went active as more liquid S&P SL20 index fell by 5.0 percent and 7.5 percent, following major panic selling by investors. The main index, the All Share Price Index (ASPI), fell by 800 points below the 11,000-point level in intra-day trading.

However, after a gradual recovery following the second trading halt, the ASPI closed 374.54 points or 3.23 percent down at 11,217.76, while the S&P SL20 index fell 3.69 percent to close at 3,791.57.

However, Mathew noted that yesterday’s fall was too steep, hence was of the opinion that there’s possibility for a temporary rebound in the coming few days.

However, Mathew noted that yesterday’s fall was too steep, hence was of the opinion that there’s possibility for a temporary rebound in the coming few days.
“We feel that fall is too harsh, so there’s likelihood of a possible bounce-back to around 12,000-13000 points,” he said.

Meanwhile, the market turnover was recorded at Rs.4.5 billion, up from Rs.2.8 billion on the previous session. Hayleys, LOLC Holdings, Royal Ceramics, Expolanka Holdings and Browns Investments, were among top contributors to the turnover.

With the steep decline recorded yesterday, the market capitalisation of the Colombo Stock Exchange (CSE) fell below Rs.5 trillion.

Mathew pointed out that power outages could adversely impact the performance of manufacturing companies, hence impacting their earnings.

Amid the looming economic crisis, FCR has been advising investors to cut their equity exposures since last August. In December, it advised the investors to cut the equity exposure to 25 percent.

In particular, Mathew cautioned that the country’s forex reserves could run out by June-July (following the US $ 1 billion ISB settlement) in the best-case scenario or by March in worst-case scenario, if the government continues on the current trajectory.

FCR is forecasting the ASPI to finish this year at around 8000 points, below its fair value.