The once valuable equity portfolios of the country's two development banks, the NDB and the DFCC Bank, have taken a beating from the current downturn in the stock market and analysts estimate that these portfolios are now below cost.

"We estimate that the two DFI's equity portfolio are now at least Rs. 100 million below cost and prudent provisioning policies are likely to result in extremely uninspiring interim results,'' Asia Securities said in a market report.

"Their high foreign shareholding is also concerning in the light of the past week's collapses in Cold Stores and LOLC - things are likely to get worse in the short term for the two DFIs before they get better.''

Although provisioning for drops in market prices of shares held by a company is considered prudent financial practice, some analysts argue that until such shares are sold and actually realised losses occur, the picture is nowhere near as bad as it looks.

They make the point that both the DFCC Bank and the NDB have very strong balance sheets and their staying power is such that they are not compelled to sell any of their holdings. They can wait till the markets pick up and that is what they will do at least as far as fundamentally sound stock in their portfolios are concerned, they said.

Asia Securities has pointed out that despite sound economic and corporate fundamentals, Sri Lanka has suffered from the backlash of foreign investor sentiment against the region. The result is that many shares are "mis-priced'' with fundamentals playing second fiddle to regional issues and sentiments in the past few weeks.

In the view of Asia's analyst, while second quarter results for this financial year are likely to be "broadly positive'', net profit growth is "more than likely to slow down'' from previous quarters. Companies coming out with poor interims are expected to see their share prices take a further beating.

Many gild-edged shares including the NDB and DFCC in which there was a large foreign shareholding took a bad beating in the yet continuing depression on the Colombo Stock Exchange. Many other blue chips like JKH and Aitken Spence were similarly affected.

Some analysts advice investors with staying power to accumulate positions in fundamentally sound shares taking advantage of prevailing bargain basement prices. They say that this is an opportunity for high net worth individuals and local institutions to snap up foreign held shares.

"Take NDB for example,'' said one analyst, "they were able to comfortably market their share at Rs. 260 abroad last year. Even here in Sri Lanka there was a scramble for it at a slightly discounted Rs. 250. But now the share is trading on the CSE as low as Rs. 125.''