Colombo bourse recorded its worst drop in four years as investors reacted to the “super gain tax” proposed yesterday. A fresh wave of panic selling wiped out LKR 63bn from the market as several taxes knocked on blue-chip companies which drove the index down 200 points or more than -2%. The propose tax may impact close to thirty listed companies which represents almost 60% of the market capitalization.

Core index closed at 7,180.05 with a loss of 196.46 points (2.66%), recording its sharpest drop since February 2011. S&P SL 20 index ended mere 0.8% below the circuit break to close at a two month low of 3,962.24 with a decline of 172.46 points (-4.17%). This is the sharpest drop S&P SL 20 witnessed since its launch in 2012.

Almost all the counters in S&P SL 20 index declined today. Dialog Axiata was affected severely by the “special telecommunication tax” and the “super gain tax” and counter closed at LKR 12.00 with a drop of 12%. Further John Keells Holdings (-4.9%), Commercial Bank (-6.7%), National Development Bank (-5%), People’s Leasing (-5%) and Chevron Lubricants (-4%) witnesses sharp decline in prices. Apart from super gain tax, the proposed special levy on liquor and beer manufactures led Distilleries to decline by 2% to LKR 228.00. Lion Brewery dropped by 7% to LKR 600.20.

Importantly, the market PE has dropped to 14.0x and the price declines create a good buying opportunity for the bargain hunters to collect blue-chips at relatively cheap prices.

Daily market turnover crossed the LKR 2 billion mark to reach nearly a 3-week high of LKR 2.1bn. Five counters crossed LKR 100mn mark to record strong turnovers. People’s Leasing topped the turnover list with LKR 399mn followed by Commercial Bank (LKR 180mn), Pan Asia Bank (LKR 157mn), Seylan Bank (LKR 152mn) and John Keells Holdings (LKR 150mn).

Several crossings were recorded in Pan Asia Ban (6mn shares a LKR 26.00 per share) and Seylan Bank (1.5mn shares at LKR 99.00 per share). Aggregate value of crossings represented 15% of the market turnover.

Losers outweighed the gainers 167 to 37 while 37 counters remained unchanged. Cash map declined to 46% from 53%. 13 counters dropped to 52wk low price levels while only E B Creasy & Company reached a 52wk high price level. E B Creasy & Company closed at LKR 1,233.50, +10.1%.

Meanwhile John Keells Holdings announced that it will continue with ‘Waterfront’ project since the Directors view the project to be viable even without the planned gaming facility. Yesterday, the government decided to amend the Strategic Development Act and to ban Casinos at Water Front Properties. According to the announcement the overall brand architecture for the project has been finalized with the project being branded as “Cinnamon Life”.

Further John Keells Holdings announced its third quarter profit of current financial after the trading session. Accordingly, the company profits for the quarter increased by 28%YoY to LKR 4.3bn.

Foreign investors were net buyers for the third consecutive day with net inflow of LKR 452mn. Foreign participation was 28%. Net foreign inflows were seen in People’s Leasing (LKR 363mn), Nestle Lanka (LKR 48mn) and Dialog Axiata (LKR 43mn) while net foreign outflow was mainly seen in Commercial Bank (LKR 123mn). With todays’ inflows, the year to date foreign inflow improved to LKR 120mn from a net foreign outflow of LKR 331mn reported yesterday.

During the week the All Share index shed 96.58 points or 1.33% while S&P SL 20 index decreased by 116.65 index points or 2.86%.

John Keells Holdings emerged as the top contributor to the weekly turnover with LKR 1.1bn followed by Commercial Bank (LKR 801mn) and People’s Leasing (LKR 419mn). Waskaduwa Beach Resort and Kelani Cable were among the top gainers of the week while Dialog Axiata, Commercial Bank and People’s Leasing were among the top losers of the week.

Foreign investors were net buyers for the week with a net inflow of LKR 900mn. Weekly net foreign participation was at 37%. Weekly net foreign inflows were seen in People’s Leasing (LKR 363mn), John Keells Holdings (LKR 249mn) and Hatton National Bank (LKR 102mn) whereas net foreign outflow was mainly seen in Commercial Bank (LKR 157mn).

Moreover, the rate of inflation as measured by the CCPI on a YoY basis increased from 2.1% in December 2014 to 3.2% in January 2015. On year to year basis, the highest contribution to the overall increase came from food commodities, mainly vegetables. Prices of most varieties of vegetables increased in January 2015 due mainly to the adverse weather conditions that prevailed during the month.

Lanka Securities Research