Whats Reasons for down trend of stock market

. wrote:Crisis in the Share Market
Once again the Colombo Share Market is in the dumps. The All Share Price Index dipped below the 600 mark and the Sensitive Index fell below 900. The collapse of Colombo's Share Market is entirely due to extraneous circumstances.

The international investor community has lost confidence in emerging markets consequent to the East Asian debacle have made investors move out of the South Asian region, including Sri Lanka.

The outflow of foreign funds from the Colombo market is estimated at over Rupees One Billion. In both South Asia and South East Asia stocks are available at unbelievably low prices.

It is very clear that the Sri Lankan market fell entirely due to circumstances beyond its control. The paradoxical situation is that while corporate performance continues to be good and returns on investments high, the prices of Colombo's blue chips and good companies have fallen dramatically.

This phenomenon of corporate profits in Sri Lanka rising while share prices are falling indicates unambiguously the impact of global investors' decisions to pull out of South Asia irrespective of the performance of Sri Lanka's corporate sector.

Unfortunately such investor decisions sooner or later impact on corporate profits themselves and in turn corporate profits would also dip and feed the downward spiralling of share prices.

This demonstrates very clearly the stranglehold which international investors have in a narrow market whose demand is driven by external investors.

Unfortunately in a foreign driven share market local investors follow the dictates and sentiments of the market rather than assess the fundamental values of share prices. Consequently domestic investors, too, shy away from the market when prices keep coming down.

The downturn in share prices initiated by foreign investors pulling out of the market is sustained and indeed driven down further by local investors' lack of confidence in a bearish market.

Particularly regrettable at the moment is that there are no signs of an upward movement as it may take quite some time for investors to re-invest in the Sri Lankan market. While prices are tumbling, investors are no doubt looking to the time when they could buy blue chip shares at ridiculously low prices. And this may happen. Such a market process is another way of the Nation's silverware being sold cheaply.

Are there any remedies? The price levels of Sri Lanka's blue chip companies are such that it is time for the large corporate investors to buy these shares, not merely to steady the market, but also to reap profits later.

They should not wait till an expected rock bottom. The market has fallen adequately to make such investments prudent in the long run. Large corporate entities, provident funds, unit trusts, insurance companies and banks should make these investments.

By local corporate investors increasing their holdings the market could move upwards. Such large purchases would also ensure that the Sri Lankan Stock Exchange is less dependent on foreign investors in the future.

By effecting a better balance between foreign investors and local investors the volatility of Colombo's Stock Market could be tamed and the Colombo Share Market less prone to the fancies of foreign investors.The time is opportune for corporate investors to make this contribution towards the capital market. We hope such an enlightened approach would redeem the flagging stock market soon.

lokuayya wrote:is the total foreign outflow is only 1 billion?in that case its not too much.its peanut if locals invest.
the plc ipo alone rs 2.5 billion.
most funds for this ipo may be from local investors.that mean if local money come in market should be back to perform.