Bourse ends at one and half year low; further weakness expected

Saturday, 9 January 2016 00:00 - - {{hitsCtrl.values.hits}}

(Reuters) - Sri Lankan shares fell for a fifth straight session on Friday to end at their lowest level in nearly 1-1/2 years, led by declines in diversified and banking shares.

Fears over investors shifting to risk-free assets such as government securities due to rising yields in government securities dented sentiment.

The main stock index ended 0.72% down at 6,726.28, the lowest close since 18 July, 2014. It fell 2.44% this week.

The day’s turnover was at Rs. 487.72 million ($3.4 million), its lowest since 31 December 2015.

“The index fell below a psychological barrier of 6,760 today. That means the market could come down further,” said First Capital Equities Ltd research manager Dimantha Mathew.

“The banking sector is the worst affected with the increased taxes from budget,” he said, adding that global economic uncertainty also weighed on the market.

Investors are worried of further monetary tightening after the Central Bank raised commercial banks’ statutory reserve ratio last week by 150 basis points with effect from 16 January.

Following the Central Bank’s move, the yield on 91-day t-bill rose 14 basis points to an over-two-month high of 6.59% at a weekly auction on Wednesday.

Analysts expect more investors to shift from risky assets to fixed assets with higher interest rates and shrinking of global investments in Sri Lanka.

Shares in Distillers Company of Sri Lanka Plc fell 4.16%, while Carson Cumberbatch Plc lost 2.86%, dragging the overall index.

Conglomerate John Keells Holdings Plc fell 0.46%.

Foreign investors were net buyers for the first time in five sessions on Friday.

They bought a net Rs. 17.15 million ($119,263) worth of equities on Friday. But foreign investors have been net sellers for Rs 1.54 billion worth of equities so far this year, as compared with a Rs. 4.43 billion rupee outflow in 2015.