Sri Lanka stocks fail to sustain recovery

July 25, 2008 (LBO) – Sri Lankan stocks slumped Friday after a short-lived recovery with brokers saying fears that deteriorating economic conditions could erode company profits were likely to keep the market in the doldrums. The All Share Price Index closed down 0.58 percent (13.73 points) at 2,370.10 while the more liquid Milanka fell 1.19 percent (33.76 points) to 2,813.17. Turnover was 174 million rupees.

“Rising costs are going to have an impact on company earnings,” said Mohandas Thangarajah of First Guardian Equities.

“Most of the large companies are not geared to face the new economic realities. The boom is in commodities, not in manufactured goods or consumer durables.”

The indices were dragged down by losses in market heavyweights.

Sri Lankan Telecom fell 3.37 percent to 43 rupees and Dialog Telekom was down 1.85 percent to 13.25.

John Keells Holdings was down 0.74 percent at 100 rupees.

The stock has been hit with doubts about its future earnings after a supreme court ruling that its profitable bunkering business was acquired illegally with the subsidiary ordered to pay back taxes and return fuel storage tanks.

Lanka Cement was the most actively traded stock of the day and led the advances, rising 8.33 percent or one rupee to 13 rupees.

Trading in the stock got reactivated after the Cabinet Thursday said it had given approval for it to seek a joint venture partner to revive a defunct cement plant in northern Jaffna.

Janashakthi Insurance, which debuted on Monday, was up 2.44 percent to 10.50 but still below its issue price of 12 rupees.

Brokers said they expect the market slide to continue in the absence of any positive news that could turn the economy around and reduce record inflation and high interest rates.

They said many equities appeared overvalued and only a few firms would do well in the current economic conditions.

The see-saw movement in the indices would continue with selling sprees that push stock prices down being interrupted by bouts of buying to take them up, only to be dumped again.

“These are trading techniques,” said a broker. “We just saw a pull back in a downward trend.”