Sri Lanka stocks plunge, foreign selling weakens sentiment

Sri Lanka Telecom fell 5.26 percent (two rupees) to 36 rupees with 100,700 shares traded.

Dialog Telekom slid 25 cents to 7.

Distilleries fell 7.27 percent (four rupees) to end at 51 rupees with 169,800 shares changing hands.

Balasuriya of HNB Stockbrokers said the wild swings in global markets and fears of further falls on lower corporate earnings was also affecting sentiment on the Colombo bourse, although the local market was not closely linked to foreign markets as some other regional markets.

"The market is coming down as there is no buying support with fund managers preferring to invest in bonds in anticipation of higher returns than equities because of high interest rates," Balasuriya said.

High interest rates, inflation and energy prices were also expected to affect corporate earnings in the next few quarters.

"The other problem is that retailers are not investing as one of the constraints is that margin trading rates are so high. Because of the volatility and risk in markets people are not ready to borrow and invest.

"Also, the lower tea and rubber prices and the possibility that exports could slow down is having an impact on investor sentiment.

The global and domestic economic uncertainty were making investors wary of buying stocks that had fallen sharply and might be considered cheap, as they had done during previous bear runs.

Uncertainty over the war, despite recent gains by security forces, was also making investors adopt a wait-and-see attitude.

However, Balasuriya said, there were buying opportunities for investors who are "brave and have buying power.

Better than expected earnings could also give some direction to the market, he added.

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The All Share Price Index shed 4.49 percent (85.40 points) to close at 1,815.17 while the Milanka lost 4.38 percent (93.14 points) to close at 2,034.03.

Turnover was 236 million rupees.

Brokers said increased foreign selling had been noticed in the last few days and that the increased trading volumes were also a worrying sign.

On Thursday, however, it was mostly local selling that caused the slide.

Foreign investor sales amounted to 15 million rupees and buying 12.

Price losers outdid price gainers in a significant manner numbering 170 to a mere four, Bartleet Mallory Stockbrokers said in their market report.

"Selling pressure of foreigners continued albeit in a less extensive context when compared with yesterday thus resulting in a net outflow of 2.38 million rupees."

Analysts said the outlook for stocks was gloomy with sky-high interest rates and inflation expected to result in lower corporate earnings in the coming quarters.

"There's been significantly higher foreign selling in the last two or three days," said Geeth Balasuriya of HNB Stockbrokers.

"Also, high interest rates are keeping investors out of equities and in bonds and making margin trading more expensive."