Stock market falls after Moody’s outlook revision; rates, outflows weigh

Reuters: Shares fell on Tuesday for a second straight session, a day after Moody’s revised down its outlook on the country’s sovereign rating and as continued foreign outflows and rising interest rates weighed on investor sentiment.

Investors were also concerned over a Government proposal to reintroduce Capital Gains Tax, brokers said.

Moody’s Investors Service on Monday changed Sri Lanka’s outlook to negative from stable, citing further weakening in some fiscal metrics in an environment of subdued GDP growth, which could lead to renewed balance of payments pressure.

Overseas funds offloaded a net Rs. 18 million worth of equities on Tuesday, extending the year-to-date net foreign outflow to Rs. 5.79 billion worth of shares.

The benchmark Colombo stock index ended down 0.22%, or 14.24 points, at 6,446.88. The bourse shed nearly 1% last week.

“Index is moving here and there on low volumes,” said Dimantha Mathew, Head of Research, First Capital Equities Ltd.

“Interest rates are moving up. This is the issue, and there is not much display of interest in the market. Things are not looking that great.”

Turnover stood at Rs. 474.9 million ($3.26 million), well below this year’s daily average of around Rs. 754.2 million.

On Thursday, the Bourse fell 1% as concerns over a Government decision to reintroduce Capital Gains Tax kept investors on the sidelines.

Cabinet on Wednesday approved a proposal to reintroduce the tax, especially on land sales, with a Cabinet Spokesman saying no decision had been taken on whether the tax would apply to capital gains in the share market.

Shares in Lanka ORIX Leasing Company Plc fell 3.3%, while Commercial Leasing & Finance Plc dropped 5.41% and conglomerate John Keells Holdings Plc slipped 0.56%.

Treasury bill yields rose between one and four basis points at a weekly auction on Wednesday. They have risen between six and 40 basis points since the Central Bank left the key policy rates steady on 20 May.

The average prime lending rate edged up 24 basis points to 10.47% in the week ended 10 June. Stockbrokers have said rising interest rates could be detrimental to risk assets if they jump beyond 12%.