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Sri Lanka Equity Forum » Stock Market Talk » Director’s Dealings Valuable Information Tool?

Director’s Dealings Valuable Information Tool?

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market bull

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Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
By Faraz Shauketaly
As Sri Lanka’s once high-flying stock exchange takes a beating like it has never done, dealings by Directors of companies can prove to be a good sign when it comes to divesting or even buying. Some of this country’s best known stocks have taken a deep dive leaving hapless investors caught out – and with huge losses. A case in point was the sale of shares in Colombo Land and Development Plc by a director Nalaka Godahewa. As reported exclusively in the Sunday Leader (18 Dec 2011) Sri Lanka Tourism’s Chairman, sold a tranche of 400,000 shares in Colombo Land and Development Plc on the 15th of December 2011 at a price of Rs 51.30. The sale netted Godahewa a princely Rs 20 Million. Just under two months later the share price has plummeted to Rs 40.10 – a drop of Rs 11.20. Uncanny luck or otherwise, Godahewa stood to loose a staggering Rs 4.48 Million had he held on to the same tranche. For a stock that appeared to have rather gilded prospects Colombo Land and Development Plc had a peak price in August 2011 of Rs 73.40 when in the weeks previously the stock saw much activity and the price kept rising. The rise in the price apparently had more to do with demand for the shares on the market rather than any specific business the company was involved in at the time – warranting such a marked upward movement.
Section 7.8, of the rules of the Colombo Stock Exchange, (CSE) dictates that Directors with any relevant interest must notify the Regulatory Affairs section of the CSE of any dealings in shares be it sale or purchase. The CSE operates a blackout period of two clear market days after announcement of results when directors may not buy or sell. In Hong Kong the market operates a 60-day black out period for annual results and a 30 day black out period for other results like half yearly or interim results. However a study of Directors’ Interest (DI) done in Hong Kong suggested that there was no significant evidence of Directors outperforming the market soon after or prior to announcements. Whilst the report acknowledged that there was some such activity it affected smaller companies of little economic significance. A source within the small and tightly knit brokerage community in Colombo indicated that there was no in-depth study carried out on Directors’ dealings in this country that is anywhere comparable to that done in Hong Kong. Information based on Directors dealings can be a fair indication of the confidence directors have in companies that they are associated with. Invariably when conditions are ‘sound’ investors are likely to find that Directors purchase stock in their own companies. In a volatile situation such as that now being experienced on the Colombo Stock Exchange, it is more an indication of the situation ahead. In the case of Nalaka Godahewa’s sale of a large tranche of shares – amounting to 400,000 shares or 0.20% of the issued shares – those following the Directors movements may well have been prompted to sell rather than hold – on Friday (17th Feb) the Colombo Land and Development share price was hovering around Rs 40 – Rs 43 – a far cry from its all time high of Rs 73.40 and its current year to date high of Rs 58. Sources close to the CSE indicated that the particular tranche of shares may well have been purchased by companies indirectly linked to major shareholders in Colombo Land and Development Plc. There was no independent means of verifying such a claim.
A study of recent purchases made by directors – available for all to see via the CSE website www.cse.lk – indicates that a number of significant shareholders are purchasing stocks in many perceived valuable shares – clearly driven by the all time low share prices now being experienced on the CSE. The Sunday Leader expressly wishes to state that this article does not seek to promote positively or negatively any share mentioned nor does it infer any wrong-doing by any party. (faraz@thesundayleader.lk)

http://colombostockwatch.com/2012/02/directors-dealings-valuable-information-tool/

Kumar

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Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Good one to read.
Thanks for sharing.

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