Colombo Stock Exchange Trading

New tool to analyze CSE

Stock investment decisions are not made blindly. Most of the time decisions are made with the careful analysis of share history and financial status. There are several tools to analyze the share price. Trade history charts are one of the popular tools. Today I like to introduce a new tool “Price Ratio” another tool to analyze the stock market.

The concept

When buying or selling shares, it is important to know whether the current price is at its lowest or highest. Buying shares while at it’s lowest in a particular period may provide high profits if other conditions (such as financial status) are satisfied. Similarly selling at it highest is also profitable.

However looking at each share price at the Colombo Stock Exchange is tiresome. Therefore the new tool is introduced to sort and identify the shares at there highest or lowest price range at a glance.

The tool

The Price Ratio tool is a mathematical calculation which involves maximum, minimum and current price. It ranges between 0-1. Value close to Zero indicates that the share price is at its lowest range while value close to 1 indicates that the shares at it highest price range. You can easily sort the values just by clicking the “Ratio”

This tool is available at the “colombo-stock-exchange.com” under the “Highlights” and the URL is http://www.colombo-stock-exchange.com/#!highlights. The site provides information from May 2011.

Things to be concerned

Although the tool is helpful, investment decisions should not be taken purely based on this. Changes in the share price do not always occur due to normal demand. Sub divisions, consolidations, right issues, etc. also change the market price. Therefore it is advisable to look at those factors well before the investment.

Stock Market terms

Stock market has it own terms and activities. This will provide further information about the frequently used terms and key activities in Colombo stock exchange announcements and reports.

Rights issues

When a company listed in the share market further wants to expand the capital it may issue rights.

Unlike an Initial Public Offer (IPO) rights are issued only for the current shareholders of the company. The price of the Rights is determined by the company considering current market price. However the approval of the shareholders is required. Usually the price is higher than the IPO but still lower than the current market price. They are issued proportionately to existing shares owned by the shareholders. By issuing rights the company can raise capital easily without borrowing money for higher interest.

Rights issue information is available in the CSE Daily and Weekly repots in the following format

Company	Proportion	EGM / Prov. Allotment	XR From	Despatch Of Prov.  Letter Of Allot.	Renunciation	Last Date Of Acceptance & Payment	Trading  Of Rights Commences On
AAA	01 for 04	12-08-2011	13-08-2011	19-08-2011	02-09-2011	03-09-2011	25-08-2011
Name of the company	One right for each 4 shares	Date of the Emergency general meeting	Ex-Rights/ Shareholders who purchase shares on this date and after will not get rights	Sending the allotment letter for your acceptance		Last Date Of Acceptance & Payment	You can start trading your rights from this date

Rights are not mandatory for the shareholders. If a shareholder feels he doesn’t need he can simply refuse the offer by informing the company. (If you do not return the duly completed allotment acceptance form, it is regarded as “declined”)

If you do not wish to purchase rights but still want to give it to someone that could also be done.

XR 

To be entitled for rights you should keep your shares until the XR date. If you sell your shares day before the XR you are not entitled for rights. Similarly if you purchase on XR date or after you are not entitled for rights.

Benefits to shareholders

Can purchase share at a price lower than the current market price

Can commence trading before payment

Stock Market Invesments

Investment decision at Colombo Stock Exchange 

www.cse.lk

Investing in the share market is generally accepted to be profitable. However the risk is not totally avoidable and it does not occur always by chance. Therefore the investment decision should be made carefully to minimize the risk and maximize the profit. Following are the points to be considered before investing in the stock market.

Trade history

Trade history plays an important role in making decisions. Shares that continuously fluctuate largely have a good potential for short term investors they can buy during the lowest price and sell when reach the peak. All time highest and lowest price are another parameter. You can buy shares at its closest to the lowest and sell closest to the highest. However subdivisions, right issues and consolidations may affect the all time values. Past data on subdivisions, right issues etc. can be found under the announcements of each company on www.cse.lk

Twelve months trade history gives you a better understanding about the seasonal fluctuations.

Invest for IPOs

IPOs of well reputed companies have a good potential to rise several times than the initial price although it could be a gradual process. Further it does not involve broker fees. In Sri Lanka IPOs of the financial sector companies usually rise several times.

Higher dividends

Some companies pay higher dividend against the initial offering/listing price. CSE daily and weekly reports provide the dividend announcements and you have to own the share by XD date to be entitled for the dividends.  

Liquidity

Some shares had gone up to its maximum and liquidity is very low for the prices above. Avoid purchase of those shares unless you require them for something other than gaining profits.

Links to trade history

Trade history can be viewed by several stock information web sites

• www.cse.lk- shows a brief graph up to  for 12 months and  detailed history is available for charge
• www.colombo-stock-exchange.com provide a very user friendly history analyzing environment with sorting facilities and related news. http://www.colombo-stock-exchange.com/#!activePage

Invest in Colombo Stock Exchange

Several years ago bank savings become one of the profitable and safest investments route. There were times that 5-year fixed deposit paid interest as high as 20% doubling your money by 4-5 years. However after the war, with much stable economy interest rates for savings dramatically reduced.  Therefore many people find ways to invest money for better return.

Though not the safest, the stock market has good potential for high profits if invest wisely. After the war the Colombo stock market has grown significantly and both local and foreign investments had increased since then. This article was indented to provide a basic idea about the stock market and how to invest.

Shares

When companies want to find capital without taking loans they issue shares to the public to cover identified percentage of their capital. Share holders will get several benefits such as right to vote for company decisions and dividends (apportion of the profit) for their contribution to the capital.

Stock market

Stock market is the place where the share holders transact their shares. Although shares are issued at a fixed price by the company, at the stock market the price fluctuate due to demand and supply. Although the company does not benefit from these fluctuations the share holders can make profits (or loss) by selling their shares to another buyer.

How to invest
To invest in the share market an individual need to find a mediator (a stock broker). The mediator then facilitates the transactions of the investor. All the individuals need to have an account in the Central Depositary System for transactions. However companies can issue shares directly to the individuals with a certificate and they can get the dividends. However selling of those shares require access to the stock market.