Shares edge up; rising interest rates weigh

Reuters: Shares ended slightly firmer on Tuesday, rising for the first time in seven sessions on positive sentiment after an IMF loan approval, but concerns over rising interest rates and foreign outflows dented sentiment.

Turnover was low at Rs. 596.6 million ($4.10 million), well below this year’s daily average of around Rs. 786.3 million.

The International Monetary Fund’s (IMF) Executive Board approved a three-year $1.5 billion loan to support Sri Lanka’s economic reform agenda, the global lender said on Saturday.

The benchmark Colombo stock index ended 0.08% up at 6,524. It declined 0.8% last week, losing for the third straight week after gaining six consecutive weeks.

“We believe the market will start moving up. But it will take time since the net foreign numbers are not that good,” said Dimantha Mathew, Head of Research at First Capital Equities Ltd.

“Investors are still cautious about interest rates.”

Treasury bill yields rose between four and 35 basis points to near three-year highs in the last two weekly auctions through Wednesday despite the Central Bank leaving key policy rates steady for a third straight month on 20 May.

Investors are concerned about foreign outflows, with overseas investors offloading a net Rs. 25.5 million worth of shares on Tuesday, extending the year-to-date net foreign outflow to Rs. 5.66 billion.

Stockbrokers said a rise in interest rates could be detrimental to risky assets if they jumped beyond 12%. The average prime lending rate (AWPR) edged up eight basis points to 10.23% in the week ended 3 June.

Shares of Bukit Darah Plc jumped 3.98% while shares of John Keells Holding Plc rose 0.19%, pushing up the overall index.

Shares in biggest listed lender Commercial Bank of Ceylon Plc rose 0.55%.