Stock market gains to 2-week closing low; budget proposals weigh

Reuters: Shares on Tuesday hit a two-week closing low in thin trade as investor sentiment was dented by last week’s budget proposals that were announced to revise corporate and withholding taxes and boost revenue.

The Government aims to boost its 2017 tax revenue by 27% to Rs. 1.82 trillion ($ 12.36 billion) year on year, to meet a commitment given to the International Monetary Fund in return for a $ 1.5 billion loan in May.

The benchmark index of the Colombo Stock Exchange ended down 0.15% at 6,406.16, hitting its lowest close since 1 November.

Foreign investors were net sellers for the first time in nine sessions; they sold a net Rs. 125.4 million worth of shares on Tuesday. They have net sold Rs. 1.01 billion worth of shares so far this year.

“Things are very slow as investors are awaiting direction and more clarity on the taxes imposed by the budget,” said First Capital Equities Ltd. head of research Dimantha Mathew. 

“Increases in various taxes, including the withholding tax and corporate tax, have impacted the capital markets.”

Analysts said the increase in various taxes and fees will reduce the disposable income of the people and challenge the consumption-led growth

Turnover was Rs. 470.3 million, less than this year’s daily average of Rs. 707.3 million.

Shares of conglomerate John Keels Holdings Plc fell 1.34% while Dialog Axiata Plc dropped 1.79%.

Rupee falls in line with regional currencies

Reuters: The rupee fell on Tuesday, in line with declines in emerging market currencies on investor fears higher US interest rates under incoming President Donald Trump would spark capital outflows from those markets, while importer dollar demand also weighed on the market.

The weakness in the rupee also followed last week’s budget proposals to revise corporate and withholding taxes to boost revenue and cut the 2017 fiscal deficit to 4.6% of gross domestic product from this year’s 5.4%.

Dealers said a high-tax regime would put pressure on the rupee.

Rupee forwards were active, with spot-next forwards ending at 148.50/55 per dollar, compared with Friday’s close of 148.00/10. Markets were closed on Monday for a public holiday.

One-week forwards ended at 148.60/75 per dollar, compared with Friday’s close of 148.20/30.

“Importer demand was there after the long weekend,” said a currency dealer requesting anonymity.

“Exporters are reluctant to sell (dollars) due to global uncertainty and local uncertainty following the budget.”

The dollar pulled back from close to 14-year highs on Tuesday, euro zone government bond yields fell and the price of copper tumbled as traders cashed in gains from a rally fuelled by Donald Trump’s victory in the US presidential election.