Bourse hits over 10-week high; banks, large caps lead

REUTERS: Sri Lankan shares touched a more than 10-week high on Tuesday led by large caps and banks on hopes of better corporate earnings, while foreign investors exited from risky assets for a seventh straight session amid political uncertainty.

The main stock index closed 0.62% higher at 7,258.61, its highest since 27 February. It has gained 5.2% since the central bank cut key rates on 15 April, while yields on t-bills have fallen 44-57 basis points since then.

Earnings of 24 listed companies released so far have on average increased 12.4% year-on-year in the first quarter, a stockbroker said.

Net foreign outflow from equities stood at Rs. 183.7 million ($ 1.38 million) on Tuesday, extending net outflows to Rs. 937.6 million during the past seven straight sessions. Foreign investors, however, have bought a net Rs. 2.87 billion worth of shares so far this year.

Turnover stood at Rs. 1.08 billion, just above this year’s daily average of around Rs. 1.06 billion.

Investors are waiting for direction on the political front and cues from earnings, analysts said, adding the market could be dull in the medium term until the perception of political uncertainty is addressed.

Sri Lanka’s parliament is expected to debate and pass some key reforms next week and President Maithripala Sirisena has promised to dissolve parliament after that.

Shares of Distilleries Company of Sri Lanka Plc ended 5.36% firmer, while Lanka ORIX Leasing Company Plc jumped 7.54%.

CB allows rupee to fall more, dealers see further weakness

REUTERS: Sri Lanka’s Central Bank on Tuesday allowed the rupee to fall by guiding a daily trading band lower, the third downward adjustment since 30 April, in a move dealers said reflected lower domestic interest rates and a broadly strong dollar.

The central bank allowed a 20-cent, or 0.15%, fall in the spot rupee to 133.50 per dollar, following a 6 May decision to lower it by 30 cents to 133.30. A week earlier, it let the rupee drop 10 cents to 133.0 after holding it firm at 132.90 since February.

“I think the central bank is compelled to do this due to realities of an unsustainable defence of currency. But I don’t think this measure is adequate,” a currency dealer said on condition of anonymity.

“For the market, the spot rate should be somewhere near 134.50/75 per dollar,” he said.

The Central Bank did not provide any reason for its latest downward adjustment of the currency, some but analysts say lower interest rates and underlying dollar strength have forced the bank’s hand.

Central Bank officials were not available for comment.

Investor confidence ahead of a parliament election and lower-than-expected foreign inflows outweighed concerns over lower interest rates and rising imports, some analysts said.

Dealers said the spot rupee was not traded on the day as the central bank used moral suasion to prevent deals below 133.50. This intervention ploy, which is widely used by the central bank, reflects its concerns of potentially destabilising fluctuations in the rupee.

Two-month forwards ended steady at 135.65/75 per dollar compared with Monday’s close and one-month forwards were also steady at 134.70/90 per dollar as the Central Bank defended their levels, dealers said.

The Central Bank’s move to let the rupee fall came a day after Finance Minister Ravi Karunanayake rejected currency dealers’ claim that the rupee is under downward pressure.

On Friday, the Central Bank said in a statement that the rupee had depreciated 1.5% against the US dollar from the start of the year through to 5 May.