Stocks extend falls to over 2-week low; rupee edges lower

Reuters: Shares fell for a third straight session on Tuesday and closed at their lowest in more than two weeks in dull trade, while the rupee ended slightly lower, market sources said. 

On Friday, the Central Bank cut its key interest rates to support its faltering economy as overall business and consumer confidence slumped following deadly bomb attacks in April. 

Traders said the Easter Sunday bombings and violence following the attacks, and worries over slowing economic growth weighed on investor sentiment. Most investors have shied away from the market since the 21 April bombings that killed more than 250 people. 

Sri Lanka is unlikely to hit its full-year economic growth target of 3-4% following the bombings, Junior Finance Minister Eran Wickramaratne told Reuters last month. A Reuters poll has forecast growth to slump to its lowest in nearly two decades this year. 

The Central Bank Chief said on Friday that he expected the economy to grow by 3% or less this year due to the impact of the Easter attacks, and the bank was preparing a downward revision to its earlier projection for 4% growth. 

The benchmark stock index ended 0.42% weaker on Tuesday at 5,277.32. It rose 0.3% last week, recording its second straight weekly gain. The bourse has declined 12.81% so far this year. Sri Lankan markets are closed on Wednesday for a holiday. 

The Government's pension fund has resumed investing in risky assets as the stock market is “extremely undervalued at the moment and is considered a good time to go into,” the Central Bank Governor said on Friday. 

Turnover was Rs. 184.9 million ($1.05 million), less than this year's daily average of around Rs. 543.3 million. Last year's daily average was Rs. 834 million. Foreign investors sold a net Rs. 13.01 million worth of shares on Tuesday, extending the year-to-date net foreign outflow to Rs. 5.57 billion worth of equities. 

The rupee ended at 176.45/55 per dollar, compared with Monday's close of 176.40/60, market sources said. Analysts expect the rupee to weaken further as money flows out of stocks and Government securities. The rupee fell 0.06% last week but is up 3.5% for the year. Exporters had converted dollars as investor confidence stabilised after a $ 1 billion sovereign bond was repaid in mid-January. 

The rupee dropped 16% in 2018 and was one of the worst-performing currencies in Asia. Foreign investors bought a net Rs. 716.3 million worth of Government securities in the week ended 29 May, but the island nation saw a net foreign outflow of Rs. 18.4 billion so far this year, Central Bank data showed. 

Investor sentiment was damaged at the end of last year when President Maithripala Sirisena abruptly removed Prime Minister Ranil Wickremesinghe and then dissolved Parliament. A court later ruled the move unconstitutional, but the political turmoil led to credit rating downgrades and an outflow of foreign funds.