The Colombo Stock Exchange (CSE) galloped last week with the benchmark All Share Price Index (ASPI) hitting an all-time high on Monday and improving on that performance on subsequent trading days to close the week at 8,463 points on Friday. The more liquid S&P Index that normally trails the ASPI also gained sharply though less so than the benchmark index.
Brokers and analysts attributed the surge to prevailing low interest rates and said that people holding funds in fixed interest instruments have seen greater potential in the stock market and have so far not been proved wrong.
“Take the case of vehicle importers. With imports disallowed, cash that would have been once used to replenish inventory becomes available for investment elsewhere. The stock market is a magnet for such funds,” said one businessman.
Also, many companies have resorted to a share split strategy to make their shares both more liquid and more affordable on the market.
“Take the example of a fifty-rupee share split into two. Theoretically, it should then trade at Rs. 25 a share after the split. But often it does better than that at no cost to the company that had split the share because its stated capital remains what it was,” explained an analyst.
“It’s different in the case of bonus shares or scrip issues as they are called where reserves are capitalized to pay for the new shares priced at realistic values,” he also said.
Last week the Hayleys conglomerate announced share splits in over a dozen group companies. These ranged from each share being split into ten in the parent company (Hayleys) and thriving subsidiaries like Haycarb and Dipped Products while other companies like Kingsbury split a share into two.
Brokers and analysts said that the current market surge was largely driven by the Dhammika Perera controlled Hayleys and the Ishara Nanayakkara controlled LOLC groups.
Last week Hayleys announced over a dozen share splits including in its recently acquired Singer Group companies. The majority of these involved dividing each share into two though at Singer Sri Lanka each share will be split into three.
The biggest share split ever proposed is one that is pending at EB Creasy (EBC) where each share is to be split into 100. The seldom traded EBC share is quoted at the top end of the CSE sharelist. Analysts said the massive split is intended to pump liquidity into the share and make it more affordable.
“There’s a lot of retail play in the market right now with new investors who recently took some risk doing very nicely in this bull run,” a broker said.
The CSE hit rock bottom after a seven-week closure in March last year.