Brokers seek permission to close shop temporarily

Several struggling stock brokers have written to the Colombo Stock Exchange (CSE) requesting permission to temporarily halt their operations mainly due to low activity levels in the bourse, Mirror Business learns.

This was confirmed by Securities and Exchange Commission (SEC) Chairman Dr. Nalaka Godahewa during an inquiry.

“There is a proposal by several brokers requesting temporary deactivation of their operations. The CSE has forwarded it to us and we are considering it. We have not discussed it with the Commission yet, but at the secretariat level, we are looking at it positively,” Dr. Godahewa said.

He further said, it was not a “bad idea” as it has happened in many other markets as well.

“You allow those who are struggling to remain deactivate for a while. It will give more opportunities for others who will continue to operate in the market,” he noted. Altogether 29 stock brokers currently operate in the CSE, and many are of the opinion that the number is too high for all to sustain their businesses.

A number of new broking licenses were issued just after the conclusion of an almost three decade war in 2009—at a time when the market was undergoing a re-rating.

In 2010 and 2011, the daily average turnover stood over a couple of billion with the arrival of new set of retail investors into the market, providing ample opportunities to brokerages to make money.

However, in 2012, with the market undergoing a painful correction, the euphoria died down and many new retail investors burnt their fingers.

The daily average turnover in 2012 plunged to Rs.883.6 million, creating a highly competitive environment for brokers to operate. The daily average turnover in 2013, according to latest CSE figures, stands even lower at Rs.828.4 million.

“I think there are far too many brokers in our market. But like the Central Bank who has told the finance companies to consolidate, we have not told brokers to do so. The industry has to decide on its own. We are not going to tell them how to do business,” Dr. Godahewa stressed.
http://www.dailymirror.lk/

CSE to be demutualized

H D H Senewiratne

Sri Lanka is in the process of introducing demutualization to the Colombo Stock Exchange (CSE), Securities and Exchange Commission (SEC) sources said.

The SEC is in the process of finalizing the demutualization of the CSE to bring the Capital Market in line with those of more mature level, Former Executive Committee member of the SEC, Sujeewa Rajapakse told Daily News Business .

He said that since he was the President of the Sri Lanka Institute of Chartered Accountants in 2013, which holds the ex officio Commission member position of the SEC, was actively involved in introducing and promoting this concept to the country.

"During that period I handled the demutualization process, which is now about to be introduced to the country very soon. But now it is looking at quantifying the legal impediment and few other technicalities on this new concept," Rajapaksa said.

The Cabinet had approved a draft bill to be presented to parliament.

The SEC is an entity limited by guarantee, nominally owned by a group of legacy broking houses called full members.

Further they are now looking at the government, stock brokers and two other members to be main stakeholders.

In the case of demutualization they will get shares in the exchange.

The stock exchange also has trading members who were licensed later, he said.

The SEC had also drafted changes to the governing law of the agency to set up a clearing house.

Securities and Exchange Board of India has given suggestions which were given to technical consultants for review.

The demutualizing of the CSE would lead to it becoming competitive, bringing in technological innovations to the capital market and for the internationalization of membership and increase investor participation.

One of the main reasons of this initiative is to raise additional capital to expand and innovate.

The increased competition in the capital markets necessitates stock exchanges to invest in technological infrastructure that will speed up the processing of orders and reducing transaction costs for investors.

A mutually owned stock exchange is barely able to raise capital from anyone other than its members. Further a demutualized exchange operates in a more customer-focused manner and is able to take action more straightforwardly and speedily to changes the business environment and meet competitive challenges.

Source:http://www.dailynews.lk

Arpico Finance to raise Rs. 149 m via Rights

Arpico Finance Company Plc has announced a Rights Issue to raise Rs. 148.75 million to boost its capital.

The Rights Issue will be on the basis of two new shares for every three held and will be issued at Rs. 50 per share.

The company’s share last traded at Rs. 100 last week and its net asset value per share is Rs. 110 as at end September 2013.

The current stated capital of Arpico Finance Company Plc is Rs. 96.3 million.

The company said funds raised via Rights will be used to boost Tier 1, long term capital adequacy requirement.

Recently the Company raised Rs. 356 million via the issuance of five year listed debentures. The issue had an option of raising a total of Rs. 600 million with it wasn’t exercised.

The Rights is subject to regulatory and shareholder approval.

The Pratapkumar de Silva family controls Arpico Finance Plc. Alfinco Insurance Brokers Ltd. holds a 40.58% stake in the company whilst Alliance Finance Plc owns 19.53%. Other major shareholders include Dawi Investment Trust Ltd. (7.93%) and K.D.D. Perera (6.60%). Its public holding is 40%.

With 62 years in the finance industry, Arpico Finance Company PLC is a fully-fledged finance company.

For the six months ended on 30 September 2013, Arpico Finance Plc’s net interest income rose by 54% to Rs. 221.7 million whilst total operating income rose by 38% to Rs. 248.3 million.

Net operating income amounted to Rs. 214.3 million, up from Rs. 162.6 million a year earlier. Profit from operations rose by 158% to Rs. 37.5 million whilst first half net profit amounted to Rs. 29.7 million, up by 213% from a year earlier.

Total assets crossed the Rs. 5 billion mark by end September 2013, from Rs. 4.6 billion as at end FY13. Liabilities amounted to Rs. 4.5 billion, up from Rs. 4.1 billion.

Board of Directors of Arpico Finance Plc comprises of B. Ponnambalam (Chairman), H. Rajudin (Managing Director), R.E. Weerasinghe, L.D. Peiris and N.M. Peiris.
http://www.ft.lk/2014/01/06/arpico-finance-to-raise-rs-149-m-via-rights/

2014: We are bulls – smart money in equities

By First Capital Equities
Having underperformed against most developed and emerging markets during 2013 with a gain of just 2.3% (in dollar terms), we believe that the ASPI is set to change course during 2014 and poised for a much awaited re-rating.

Our bullish market outlook is due to the following;
Continued softening in domestic interest rates
Twelve T-Bill rates have declined by 285 bps during 2013 and indications are that rates are likely to soften further this year which may result in a shift in funds from the money market to equities. In the Central Bank’s Monetary Policy Review for the month of January 2014, the Central Bank has already indicated that it will reduce the lending rate by 50 bps to 8.0% pointing to further reductions in market rates.

Recovery in corporate EPS growth. With domestic inflation expected to be benign during 2014, we expect operating margins of companies to improve from their 2013 levels. This combined with a reduction in interest costs should result in an expansion in corporate net margins thereby resulting in a recovery in corporate profitability.

Foreign fund flows will provide market momentum
Notwithstanding eurozone debt tensions, most global equity markets rose during the year with foreign funds flowing into both developed and emerging market equities. As shown in the chart, the correlation between the MSCI Emerging Markets Index, the MSCI Asia Apex 50 index and the ASPI remains strong. With emerging market bond funds expected to record outflows this year, we expect liquidity to flow into emerging/frontier market equities. Given the country’s robust fundamentals, Sri Lanka may be a strong beneficiary.

Falling gold prices will provide boost to ASPI
Having declined by 28% during 2013 and as one of the worst performing assets during the year, spot gold is expected to continue decline (albeit moderately) during 2014. Given the inverse co-relation between gold prices and the ASPI during the 2013 as evident in our chart, we believe that any further decline in gold should exert upward pressure on the ASPI.

Reduction in debenture offerings
The significant amount of debentures offered in 2013 mopped up approximately Rs. 72 billion of investible funds that could have otherwise entered the stock market resulting in market turnover levels falling to considerably low levels. Given our expectation of a further softening in interest rates in 2014, the allure of debentures as an ‘investible’ may wan resulting in a flow of funds back into equities.

In economic news, inflation on a YoY basis declined to a two year low of 4.7% in December 2014 compared to 9.2% recorded in the corresponding period of 2012. Consequently the annual average rate of inflation declined for the seventh consecutive month to 6.9% compared to 7.3% recorded in the previous month. A slowdown in the price increase of items in the Non-food category, from 10.0%YoY in 2012 to 6.1%YoY in 2013, contributed to a decline in the annual average inflation rate while relatively high inflation in the food and non-alcoholic beverages category has exerted upward pressure on the CPI.

2014 stock picking guidelines – Back to basics
In order to benefit fully from the bourse’s movements in 2014, we believe that investors may have to revisit the basics of equity investing to derive maximum returns at their accepted level of risk. While most domestic investors were discouraged to enter the bourse last year on the grounds that the market did not deliver, quality stocks listed on the bourse did however generate double digit returns and we believe that they are well likely to replicate their gains in 2014.

Key factors for investors to consider when investing in Sri Lankan equities in 2014 are;

• Defining the risk appetite
• Defining the expected rate of return
• Defining the investment horizon
• Decide on the sector
• Decide on stocks within sector

Market trajectory
While we do contend that the Sri Lanka bourse has not delivered on an YTD basis in 2013 due to a multitude of factors, our 2014 market outlook remains increasingly bullish. However, we advise investors to remain selective and focus on companies with largely monopolistic attributes and strong brand loyalty within sectors and sub-sectors that are both growth and resilient. We re-iterate the need consequently to build a solid portfolio of liquid stocks that have strong top line revenue growth and sustainable margins which we believe are likely to benefit most from the domestic demand story in sectors such as F&B, tourism, manufacturing, diversified, banking and construction. In this respect, we accentuate the need to take a directional call, make an informed investment decision, build a robust portfolio and maintain a strict investment discipline in order to benefit fully from the Bourse’s 2014 upward trajectory.

http://www.ft.lk/2014/01/06/2014-we-are-bulls-smart-money-in-equities/

EPF returns to members could dip

Ceylon FT: Central Bank Governor, Ajith Nivard Cabraal, says the country’s largest superannuation fund could pay its members interest at between 10.8% and 11.3% for 2013, slightly down from 11.5% in 2012.

Central Bank recently claimed that the Employees Provident Fund (EPF) has been providing incomparable good returns to its members over the past few years, despite all the speculations and allegations made by different individuals.

Presenting Road Map 2014, Central Bank Governor, Ajith Nivard Cabraal said, No other fund was able to gain a growth like EPF. The fund has done a lot better than what some of the private sector managers of investment funds were able to achieve.”

The total value of the EPF grew by 12.4% during the first nine months of 2013 mainly due to improved members’ contribution and healthy investment income. EPF’s rate of return to be credited to members for 2013 is likely to be between 10.8% and 11.3%. The total income of the fund grew by 11.9% during the first nine months last year.

At present, the EPF has an active membership of 2.3 million.

The Central Bank said, the EPF will continue to implement diversification strategies to maximize returns in the projected future low interest rate environment. The strategy will include diversification into new instruments, investments in foreign currency denominated instruments and increased participation in secondary market activities.

He went on to say that, with easing monetary conditions, fiscal consolidation and low volatility of inflation, market interest rates are expected to remain low, thereby, providing a challenging environment for the EPF to generate high returns in the medium to long-term.

An electronic data base management system and an e-record room will be set up during the second quarter of this year with electronic records. This will further enhance its services to improve efficiency thereby providing better service to its members and employer firms.

Accordingly, the fund will systematically continue to diversify its investment portfolio in order to provide better returns to its members. The EPF has invested in fundamentally sound stocks in the stock market with a long-term focus. Fund management efficiency will be increased with in-depth analysis of investments, in compliance with the internal rules and improved risk management, he added.

Critics have pointed out that the EPF funds were being used to invest in weak companies listed on the stock exchange and the annual report for 2011 is yet to be made public. (C de S)


http://ceylontoday.lk/22-51975-news-detail-epf-returns-to-members-could-dip.html

MBSL’s stock market index has 10 new inclusions

Ten companies have been included in the 2014 MBSL MIDCAP Index which measures the aggregate price level and price movements of medium size companies listed on the Colombo Stock Exchange (CSE).

They are Asiri Surgical Hospital PLC, Browns Investments PLC, Hemas Holdings PLC, Lanka IOC PLC, Overseas Realty (Ceylon) PLC, Royal Ceramics Lanka PLC, Tokyo Cement Company (Lanka) PLC, Union Bank of Colombo PLC, United Motors Lanka PLC and Watawala Platations PLC The exclusions from the 2013 index are Access Engineering PLC, Browns Beach Hotels PLC, Ceylon Grain Elevators PLC, Colombo Land & Development Company PLC, Environmental Resources Investments PLC, John Keells Hotels PLC, Lanka Orix Finance PLC LB Finance PLC, ODEL PLC and Seylan Bank PLC.

The index, which came into operation in 1999 and is revised annually, looks at the middle range market capitalisation, liquidity and the profitability of the firms to be included in the MBSL MIDCAP Index.

“The MBSL MIDCAP Index will facilitate investors who seek for a return index of medium sized companies listed on the CSE,” according to an MBSL statement which said the index could be used as the benchmark index by individual and institutional investors who prefer growth but are prepared to with stand only conservative levels of volatility in their equity investments.

The other companies in the 25-company index for 2014 are Nations Trust Bank, People’s Leasing & Finance, PABC, Janashakthi Insurance, Central Finance Company, Vallibel One, Expolanka Holdings, Softlogic Holdings, Richard Pieris, Colombo Fort Land & Building, Asiri Hospital Holdings, Lanka Hospital Corporation, Textured Jersey Lanka, Piramal Glass Ceylon and Laugfs Gas.
http://www.sundaytimes.lk/140105/business-times/mbsls-stock-market-index-has-10-new-inclusions-78330.html

Sri Lanka stocks edge up to more than 11-week closing high

COLOMBO, Jan 3 (Reuters) - The Sri Lankan bourse gained for a sixth straight session to close at its highest level in more than 11 weeks on Friday, a day after the central bank cut its lending rate by 50 basis point to a multi-year low. 

The main stock index touched 6,007.79 during the session, a level last seen on Aug. 23 last year, but retreated to end up 0.1 percent, or 5.76 points, at 5,973.80, its highest close since Oct. 17. It gained 1.65 percent on the week. 

"Investors are optimistic over the rate cut and believe retail and large institutional investors will return to the market once banks reduce their lending rates in line with the rate cut," a stockbroker said on condition of anonymity. 

The central bank slashed the standing lending facility rate or reverse repurchase rate by 50 basis points to a multi-year low of 8.00 percent on Thursday, in a move to reduce commercial banks' interest rate spreads. 

Revealing its financial and monetary policies for 2014, the central bank governor said the economy is expected to grow 7.8 percent this year, with an inflation target of 4-6 percent in a lower interest rate regime. 

The index is in an overbought region for a second session with its 14-day relative strength index at 75.785, above the upper neutral level of 70, Thomson Reuters data showed. The index gained 4.8 percent in 2013 after losses in the previous two years, giving a return of 2.18 percent in dollar terms. 

Many investors locked their funds in risk-free debentures instead of risky assets due to a sluggish bourse amid falling interest rates. Foreign investors bought 7.8 million rupees worth of shares on Friday after buying a net 22.88 billion rupees worth of stocks last year, compared with a record 38.68 billion rupee net foreign inflow in 2011. 

The day's turnover was 349.6 million rupees ($2.67 million), less than last year's daily average of about 828.4 million rupees. 

($1 = 130.7250 Sri Lanka rupees) 

(Reporting by Shihar Aneez; Editing by Sunil Nair and Robert Birsel)

Source: http://in.reuters.com