The Colombo bourse continues to be haunted by high interest rates with the All Share Price Index falling 0.07 percent on Monday, brokers said, as volumes dipped to a two-and-a-half -year low.
The Milanka Price Index of more liquid stocks gained 0.02 percent while the S&P SL 20 index closed flat.
Year-to-date, the Colombo Stock Exchange has fallen 18.9 percent.
Foreign selling outweighed buying, resulting in a net outflow of Rs. 19.3 million. The bourse has recorded a net inflow of Rs. 23.7 billion year-to-date.
"The rising yields continued to haunt the bourse with investors preferring fixed income to equity. Activity and volumes struggled to maintain respectable levels as volumes recorded the lowest since 11.12.2009. With indices reaching attractive levels selling pressure seemed to have vanished giving life to a stagnant index. All three indices registered marginal movements in either direction remaining flat for most part of the day," Softlogic Equity Research said.
Turnover reached Rs. 125.1 million on a volume of 7.5 million shares changing hands during the day.
"As the market re-enters phase of stagnation a sharp decline in activity and turnover has gripped the bourse. The rising bond and bill market yields are providing negative signals on equity investments. It should be noted that the battered market has witnessed over 100 counters still trading at or below asset value (1.0x PBV).
"At this moment stock picking would be vital with the fundamental counters slowly but surely raising their heads amidst the ability to pass on cost increases to consumers and buyers. We believe favourable economic conditions are likely to be felt by businesses beyond August 2012. The final tranche of the IMF, extended IMF program and the sovereign bond issue is likely to stabilize exchange rates and interest rates in the short term," Softlogic Equity Research said yesterday.
"We believe investors should adopt a cautious accumulation mode, picking value stocks trading at bargains. Though a bull run is unlikely amidst current yields in the market interest rates, a reversal of the trend is likely to take place beyond August 2012 towards the final quarter of 2012," it said.
Lanka Orix Leasing Company and National Development Bank were among the top contributors to turnover, closing at Rs. 37.10 and Rs. 100 respectively, as was Carsons Cumberbatch which fell 0.24 percent to close at Rs. 462.90.
Overseas Realty too was among the top contributors to the day’s turnover, closing 1.50 percent higher at Rs. 13.50 while Bukit Darah closed 0.21 percent higher at Rs. 755.