Shares end at over 3-week low; further fall expected

Reuters: Shares fell for a third straight session on Wednesday and closed at their lowest level in more than three weeks as an expected rise in yields of Government securities eroded investors’ appetite for risky assets.

The yield on 91-day t-bill rose 14 basis points to a more than two-month high of 6.59% at a weekly auction on Wednesday, after the Central Bank increased statutory reserve ratio by 150 basis points with effect from 16 January.

The main stock index fell 0.4%, or 27.65 points, to close at 6,817.65, its lowest close since 14 December.

“We are advising investors to cash out 30% of their portfolio with expectation of one-year t-bill yield to move up to 10% by end of the first half given tight global funding for Sri Lanka,” said Dimantha Mathew, Research Manager at First Capital Equities Ltd.

Analysts expect more investors to shift from risky assets to fixed assets with increasing interest rates.

One-year t-bill yield was at 7.30% on Wednesday.

“Foreign fund is going to get difficult and the local borrowing cost is going to be high as the Government will have to mainly depend on local funds,” Mathew said.

The Central Bank on Wednesday raised the SRR by 150 basis points to 7.50%, to curb the excess credit growth and to stabilise the rupee hovering near record lows and slow private sector credit growth.

Foreign investors sold a net Rs. 131.9 million ($916,609) worth of equities on Wednesday. They have sold a net Rs. 1.3 billion worth of equities so far this year compared to Rs. 4.43 billion in 2015.

Foreign selling accounted for 87.5% of the day’s turnover of Rs. 1.4 billion.

Shares in Tal Lanka Hotels Plc, which edged up 2.8%, accounted for around 62% of the day’s turnover.

A 3.2% loss in Lion Brewery and a 2.3% fall in Ceylinco Insurance dragged the overall index.