Sri Lanka's stx down after rally on profit-taking

   
The island nation's main share index closed 0.92 or 56.81 points down at 6,087.86 from its highest since Nov. 14. On Thursday, SEC Chairperson Indrani Sugathadasa stepped down "to uphold her principles," barely a month after her deputy
was moved amid broker complaints that tougher regulation was hurting sentiment.
 
"Though the market is driven on the sentiment that there will be more credits and margin trading, those will not boost share prices fundamentally," said an analyst on condition of anonymity.
 
Brokers have complained investor sentiment has turned negative due to firmer regulation by the SEC, which has looked into price manipulation and cut the amount of credit available, which has hit broker commissions and trading volume.
   
The bourse surged 4.14 percent on Monday from a 14-month low after Rajapaksa met the heads of stock brokerages who urged the president to take action to help the bourse rebound.
 
   
The day's turnover was 1.44 billion Sri Lanka rupees ($12.65 million), less than last year's average of 2.4 billion and this year's 2.4 billion.
   
Shares in retail favourite Touchwood Investment PLC fell 3.43 percent to 22.50 rupees while Entrust Securities Ltd fell 0.28 percent to 70.70 rupees.
 
Market heavyweight John Keells Holdings PLC, which saw foreign selling of 114,100 shares, ended 1.00 percent weaker at 168.20 rupees.
 
Total volume was 83.7 million shares, against a five-day average of 90.6 million. The 30-day and 90-day average trading volumes were 61.2 million and 102.7 million. Last year's daily average was 67.9 million.
   
The bourse has fallen 10.26 percent since Oct. 1. It is now Asia's 12th-best performer with a year-to-date loss of 8.26 percent after being at the top until  June. It gave Asia's best returns in 2009 and 2010.
   
The bourse saw a net foreign outflow of 49.5 million rupees on Friday, and thus far in 2011, offshore investors have sold 17.8 billion, and a record 26.4 billion in 2010.
 
On Friday, the bourse was in neutral territory with the 14-day relative strength index at 44.2, above the lower neutral range of 30. Gainers outnumbered losers by 159 to 44 on Friday, Thomson Reuters data showed.
 
The rupee closed flat at 113.89/90 rupees a dollar for the eighth straight session, dealers said.
   
The central bank on Friday sold around $10 million to defend the currency, dealers said, extending its total dollar sales to $220 million since the 3 percent devaluation on Nov. 22.

Sri Lanka rupee rate should be market-driven

COLOMBO, Nov 24 (Reuters) - Sri Lanka's rupee exchange rate should be driven by market forces except in cases of volatility, but this week's 3 percent devaluation was necessary medicine to ease a ballooning trade gap, the country's finance secretary said on Thursday.

Finance Ministry Secretary P.B. Jayasundera, the top technocrat in the island nation's finance ministry and architect of Sri Lanka's last 14 budgets, said the devaluation was a considered move that was essentially "a market correction."

Sri Lanka's currency, share, and bond markets are still adjusting to the devaluation after the central bank implemented it as ordered by President Mahinda Rajapaksa during his 2012 budget presentation on Monday.

"(Having) the reserve level of $6-7 billion is the time to do this correction. We had $8 billion reserves and the reserves are under pressure. If you continue to let that happen without giving a signal, at some point you will have to do this or take some other drastic measures," Jayasundera told Reuters.

Jayasundera said the exchange rate policy had encouraged imports, as did low interest rates, while exporters grew less competitive and had less incentive to expand.

Sri Lanka's trade deficit though August was $5.96 billion, nearly as big as 2008's record shortfall. The full-year forecast is $6.76 billion. Despite that, the central bank has spent more than $1 billion this year defending the rupee, while Asian peers let their currencies drop.

"In my view, some adjustment should have happened even before to prevent this. It should be a market-driven, stable exchange rate. When the market doesn't produce it, the central bank needs to come into help stability," he said.

The International Monetary Fund praised the devaluation as a move in the right direction, after it withheld the eight tranche of a $2.6 billion loan after the government refused to allow for a more flexible exchange rate.

SHERATON IN SRI LANKA

Jayasundera and Central Bank Governor Ajith Nivard Cabraal are the two most influential economic policymakers in Sri Lanka, aside from Rajapaksa, who at times steps into economic policy in his capacity as finance minister -- often surprising markets.

The honeymoon investor sentiment Sri Lanka enjoyed as an emerging frontier destination, after winning a 25-year civil war in 2009, has taken a series of hits in the past two months.

It cancelled a $500 million Chinese hotel deal over a land dispute, transferred a capital markets regulator who cracked down on investor misconduct, and rammed through a law allowing the state to take back assets leased to private companies.

"In my view none of the investors have been affected by these incidences. But of course the sentiment has. Serious investors are not worried," Jayasundera said.

The voiding of the hotel deal with China National Aero Technology Import and Export Corp. (CATIC) may hit the 2011 $1 billion foreign direct investment (FDI) target, he said.

The land in question, on the historic Galle Face seafront in Colombo, will be given to India's ITC Ltd. conglomerate, to build a hotel under the Sheraton name. ITC is a franchisee of the largest of Starwood Hotels and Resorts Worldwide's brands.

"The land will cost $70 million and the CATIC land will be released. The total investment would be $450 million," Jayasundera said.

Officials from ITC could not be reached for comment. (Additional reporting by Aniruddha Basu in Mumbai; Editing by Bryson Hull)

HIGHLIGHTS-Sri Lanka 2012 budget presentation

Nov 21 (Reuters) - Sri Lankan President Mahinda Rajapaksa on Monday presented the 2012 budget to the island nation's parliament.

Following are highlights of his speech:

RUPEE DEVALUATION

"We need to reduce the import cost and increase export revenue. When our currency has strengthened, our trading partners' currencies have depreciated. So I propose to devalue the currency by 3 percent with effect from today."

ECONOMIC GROWTH:

"We have been able to maintain the growth rate at 8 percent in 2011, the same as 2010."

The government initially had forecast growth of 8.5 percent in 2011, but trimmed the forecast to 8.3 percent last month.

"In the Northern region, it is reported that the growth is 23 percent, well beyond 8 percent." Last year, economic activity in the former war zone -- which was under the control of Tamil Tiger separatists for decades until the Sri Lankan military defeated them in 2009 -- grew at a 14.2 rate.

NO ELECTIONS IN 2012

"I will not give any elections next year.

The Northern Provincial Council is the only remaining provincial government that has not had elections.

Devolution of power to the provincial level in the Tamil-dominated north is a crucial demand of Tamil parties negotiating with the government over political concessions, with the backing of several Western governments.

TAXES

"In addition to rice, we need self-sufficiency in green grams, peanuts, ginger, and corn in order to achieve food security. So I propose a high cess on imports of these products."

"Vehicle registration charges will be revised while they will be increased for luxury vehicles in order to increase revenue of provincial councils." He also said tourism vehicle import duties will be cut by 50 percent

INFRASTRUCTURE

"We have allocated 30 billion rupees ($271.8 million)for the inter provincial road network."

"We can be the regional sports hub and that can help to strengthen our economy. I propose 500 million rupees for development of infrastructure complexes and all sport goods will be tax-free in order to encourage sports."

TOURISM VISA FEES

"We have decided to impose a vise fee of $10 per person from the SAARC (South Asian Association for Regional Cooperation) region countries and $20 from the other regions' visitors. There won't be any charge on children to encourage family tourism. Tourists who spend a minimum of 48 hours also won't be charged. This will give an additional revenue of 2 billion rupees."

DEFENCE SPENDING

Of 230 billion rupees allocated to defense, 203 billion or 88 percent will be spent on salaries, food and uniforms.

STATE SECTOR WAGE HIKE

"I propose a salary increase of a 10 percent to the state sector employees including for the military."

PLANTATIONS

"We have a very limited land extent... we will completely stop the selling of government lands for the private sector and have decided only to lease out on a long-term basis

"If any investor does not adhere to the lease agreement, action will be taken to cancel the those lease agreements

"Now we have identified 37,000 acres of land under the plantation industries which are not used. These identified lands will be handed over to identified families for a 30-year lease, 2 acres each to develop small estates with lending facilities and seeds."

($1 = 110.375 Sri Lanka Rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Bryson Hull)

Sentiment indicators in Stock market

Technical analysis is not just about charts. There are hosts of other indicators providing additional or
alternative pointers to market movements and hence tips on when to trade.

Some of them work on indications of general sentiment in the market.One of the difficulties with any of these guides, of course, is that as soon as they become generally known they fail to provide reliable signals.

An example is the ‘small-lot indicator’ (small trades in shares) as a useful counter-indicator in the United States. This works on the assumption that small investors are almost invariably wrong.

They buy at the top and sell at the bottom, so they provide a good counter-indicator. This has been gradually extended as it became clear it was not just the amateurs who got carried away by the prevailing or fashionable economic view: it became slightly transformed to the feeling that a universally bearish attitude in the country as a whole is a sign of an upturn and rampant bullishness is a sign to sell. Some companies even tabulate the number of investment advisers that are bullish or bearish as a sign to go the other way when unanimity seems imminent. In other words, when the small buyers start piling in it is time to sell, and vice
versa.

Word got around and so many people started acting on the theory that it became a self-defeating prophecy and confusion seems to have buried it.

The flow of funds indicators show demand for securities and where people are heading to put their cash. Sometimes the intensity of feeling about a company can be gauged by the volume of shares traded, especially if a chart can show whether the total is up, down or unchanged. The combination of price and
volume movements gives a pretty good indication of overall attitudes:

if prices and the amounts of shares traded are both rising it is an indication that the market for the share is set to rise;

 a rising price but a declining volume of shares traded is a worrying trend indicating the price rise is running out of steam, and as the upward movement slows to a halt the direction is likely to reverse and the price will soon start to fall;

a falling price coupled with rising volume shows investors heading for the exit in growing numbers, which can only reinforce and accelerate the falling price;

the price and volume of shares traded both falling shows investors beginning to have second thoughts about selling and the downward pressure is therefore easing; soon it will bottom out and start upwards

What is Warrants

Warrants are often issued alongside a loan stock to provide the right to buy ordinary shares, normally over a specified period at a predetermined price, known as the ‘exercise’ or ‘strike’ price.

They are also issued by some investment trusts. Since the paper therefore has some easily definable value, warrants are traded on the stock market, with the price related to the underlying shares:the value is the market price of the share minus the strike price.They can gear up an investment.

For instance, if the share stands at 100 rupees and the cost of converting the warrants into ordinary shares has been set at 80rupees, the sensible price for the warrant would be 20rupees. If the share price now rises to 200rupees, the right price

for the warrant would be 120rupees (deducting the cost of 80p for converting to shares). As a result, when the share price doubled the warrant price jumped six-fold.

What and why are shares?

Businesses need money to get started, and even more to expand and grow. When setting up, entrepreneurs raise some of this from savings, friends and families, and the rest from banks and venture capitalists. Backers get a receipt for their money which shows that their investment makes them part-owners of the company and so have a share of the business (hence the name).

Unlike banks, which provide short-term finance at specified rates that has to be repaid, these investors are not lenders: they are the owners. If there are 100,000 shares issued by the company, someone having
10,000 of them owns a tenth of the business. That means the managing director and the rest of the board are
the shareholders’ employees just as much as the shop-floor foreman or the cleaner. Being a shareholder carries all sorts of privileges, including the right to appoint the board and the auditors.

In return for risking their money, shareholders of successful companies receive dividends. The amount varies
with what the company can afford to pay out, which in turn depends on profits.

At some stage the business may need more than those original sources can provide. In addition, there comes a time when some of the original investors want to withdraw their backing, especially if it can be at a profit.

The only way to do that would be by selling the shares, which meant finding an interested buyer,which in itself would be far from easy, and then haggling about the price, which would be awkward. A public marketplace was devised for trading them – a stock exchange. Companies ‘go public’when they get their shares quoted on the stock exchange to make things easy for investors a neat little device invented by the Dutch right at the start of the 17th century

How The Power Of The Masses Drives The Market

The Force of Emotion 
One way to see the market is as a disorganized crowd of individuals whose sole common purpose is to ascertain the future mood of the market (the balance of power between bulls and bears) and thereby profit from a correct trading decision today. However, it's important to realize that the crowd is comprised of a variety of individuals, each one prone to competing and conflicting emotions. Optimism and pessimism, hope and fear - all these emotions can exist in one investor at different times or in multiple investors or groups at the same time. In any trading decision, the primary goal is to make sense of this crush of emotion, thereby evaluating the psychology of the market crowd. (To read more on behavioral finance, seeUnderstanding Investor Behavior.)

Charles Mackay's famous book, "Extraordinary Popular Delusions and the Madness of Crowds", is perhaps the most often cited in discussions of market phenomena, from the tulipmania in 17th-century Holland to most every bubble since. The story is a familiar one: an enduring bull market in some commodity, currency or equity leads the general public to believe the trend cannot end. Such optimistic thinking leads the public to overextend itself in acquiring the object of the mania, while lenders fall over each other to feed the fire. Eventually, fear arises in investors as they start to think that the market is not as strong as they initially assumed. Inevitably, the market collapses on itself as that fear turns to panic selling, creating a vicious spiral that brings the market to a point lower than it was before the mania started, and from which it will likely take years to recover. 

The Nature of Crowds 
The key to such widespread phenomena lies in the nature of the crowd: the way in which a collection of usually calm, rational individuals can be overwhelmed by such emotion when it appears their peers are behaving in a certain universal manner. Those who study human behavior have repeatedly found that the fear of missing an opportunity for profits is a more enduring motivator than the fear of losing one's life savings. At its fundamental level, this fear of being left out or failing when your friends, relatives and neighbors seem to be making a killing, drives the overwhelming power of the crowd. 

Another motivating force behind crowd behavior is our tendency to look for leadership in the form of the balance of the crowd's opinion (as we think that the majority must be right) or in the form of a few key individuals who seem to be driving the crowd's behavior by virtue of their uncanny ability to predict the future. In times of uncertainty (and what is more uncertain than the multitude of choices facing us in the trading universe?), we look to strong leaders to guide our behavior and provide examples to follow. The seemingly omniscient market guru is but one example of the type of individual who purports to stand as all-knowing leader of the crowd, but whose façade is the first to crumble when the tides of mania eventually turn.

Choices, Choices, Choices … 
Due to the overwhelming power of the crowd and the tendency for trends to continue for lengthy periods of time on the basis of this strength, the rational individual trader is faced with a conundrum: does he or she follow the strength of the rampaging hordes or strike out defiantly with the assumption that his or her individually well-analyzed decisions will prevail over the surrounding madness? The solution to this problem is actually quite simple: follow the crowd when its opinion jives with your analysis and cut your losses and get out of the market when the crowd turns against you! Both following the crowd and getting out present their own unique challenges. 

The Risks of Following the Crowd The key to enduring success in trading is to develop an individual, independent system that exhibits the positive qualities of studious, non-emotional, rational analysis and highly disciplined implementation. The choice will depend on the individual trader's unique predilection for charting and technical analysis. If market reality jives with the tenets of the trader's system, a successful and profitable career is born (at least for the moment).

So the ideal situation for any trader is that beautiful alignment that occurs when the market crowd and one's chosen system of analysis conspire to create profitability. This is when the public seems to confirm your system of analysis and is likely the very situation where your highest profits will be earned in the short term. Yet this is also the most potentially devastating situation in the medium to long term, because the individual trader can be lulled into a false sense of security as his or her analysis is confirmed. The trader is then subtly and irrevocably sucked into joining the crowd, straying from his or her individual system and giving increasing credence to the decisions of others.

Inevitably, there will be a time when the crowd's behavior will diverge from the direction suggested by the trader's analytical system, and this is the precise time at which the trader must put on the brakes and exit his position. This is also the most difficult time to exit a winning position, as it is very easy to second guess the signal that one is receiving, and to hold out for just a little more profitability. As is always the case, straying from one's system may be fruitful for a time, but in the long term, it is always the individual, disciplined, analytical approach that will win out over blind adherence to those around you. (Learn more in Master Your Trading Mindtraps and Removing The Barriers To Successful Investing.)

The Challenges of Going Against the Crowd and Getting OutA trader's best decisions will be made when he or she has a written plan that spells out under exactly what conditions a trade will be entered and exited. These conditions may very well be driven by the crowd, or they may occur regardless of the direction in which the crowd is moving. And there will be times when the trader's system issues a signal that is exactly opposite to the direction in which the crowd is moving. It is the latter situation of which a trader must be extremely wary.

In a sense, the crowd is never wrong over the short term. When the crowd is moving in a direction that is contrary to what a trader's system maintains, the trader's best decision is to get out! In other words, the trader should take his or her profits or realize losses and wait on the sidelines until such time as a positive signal is once again issued by the system. It is better to relinquish a certain amount of potential profit than to lose any amount of one's hard-earned principal. (Learn more in The Art Of Cutting Your Losses.)

The Bottom Line
Remember, the feeling that you are missing out on a surefire opportunity for profit is the most psychologically trying and dangerous situation that you are likely to face in your trading career. Indeed, the feeling of missed opportunities is more taxing than realizing losses - an inevitable eventuality if you stray from your chosen path. This is perhaps the ultimate paradox of trading, that our innate human instinct and desire to fit in with the crowd is also the situation that has led many an individual trader to financial ruin. Never fight the power of the crowd, but always be aware of how your individual decisions relate to the power of those around you.

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