Stock market gains but foreign investors continue exit

Tuesday, 22 March 2016 01:24 - - {{hitsCtrl.values.hits}}

REUTERS: Sri Lankan shares closed at a near three-week high on Monday in dull trade as cautious investors selectively bought risk assets, while foreign investors exited amid a rise in yields of government securities.

Uncertainty over a capital gains tax and economic growth, and a higher budget deficit also hurt market sentiment, analysts said.

Foreign investors sold Rs. 137.5 million ($ 946,644) worth of shares on Monday, extending the net foreign outflow so far this year to Rs. 1.79 billion worth of shares.

The benchmark share index ended 0.51%, or 30.78 points higher, at 6,088.57, its highest close since 1 March.

“Nothing much is happening. Overall, everything is very dull with holidays in-between, and investors are worried over the uncertainties,” said Dimantha Mathew, Head of Research, First Capital Equities Ltd.

Markets will be closed on Tuesday and Friday for local holidays.

Investors preferred fixed interest-rate bearing assets over shares due to a rise in yields on treasury bills, which are hovering at more than two-year highs, and on the Central Bank’s unexpected interest rate hike in mid-February, dealers said.

Yields on t-bills jumped by 62-90 basis points at a weekly auction on Monday to 29-month highs.

Sri Lanka will raise its value-added tax and reintroduce capital gains tax to break out of a debt trap, ahead of talks on a $ 1.5-billion loan it is seeking from the International Monetary Fund.

Sri Lanka’s economy is expected to grow 5.3% in 2016, data from the state statistics office showed, but analysts say tight monetary and fiscal policies may curb growth.

The $ 82.2-billion economy expanded at a sluggish 2.5% in the December quarter, down from an upwardly revised 5.6% in the previous quarter.

Analysts and economists worry slower growth could reduce corporate earnings of some listed firms.

Turnover stood at Rs. 466.5 million, well below this year’s daily average of Rs. 787.8 million.

Shares in Carson Cumberbatch Plc jumped 15.57% while Commercial Bank of Ceylon Plc rose 1.33%. Distilleries Company of Sri Lanka Plc climbed 2.57%.

Rupee forwards end weaker; seen falling on economic woes

REUTERS: Sri Lankan rupee forwards ended weaker on Monday due to importer dollar demand, while dealers expect growing uncertainty after the announcement of new tax hikes to weigh on the currency in the short term.

One-week rupee forwards, which act as a proxy for the spot currency, ended weaker at 145.85/90 per dollar compared with Friday’s close of 145.55/65.

The spot did not trade below 143.90, seen as the central bank’s desired level.

“There was importer (dollar) demand today and not much of inflows,” a currency dealer said, asking not to be named.

Analysts said the rupee would face downward pressure until any positive news.

S&P revised its outlook on Sri Lanka’s “B-plus” sovereign credit rating to negative on 10 March, a week after Fitch downgraded its rating by a notch to “B-plus” with a negative outlook.

Dealers also said policy uncertainty is deepening with the new taxes, and the capital gains tax may discourage foreign investors.

Sri Lanka will raise value added tax (VAT) and reintroduce capital gains tax to break out of a debt trap, ahead of talks on a $ 1.5-billion loan it is seeking from the IMF.

The downgrade will be of concern to international investors and market players, said analysts, adding it would push up the cost of government borrowings in the international market, putting pressure on the rupee.

Foreign investors sold Rs. 9.59 billion ($ 66.3 million) worth of government securities in the week ended March 16, data from the central bank showed, taking the total offloaded since 30 December to Rs. 66.1 billion.

Commercial banks parked Rs. 21.4 billion of surplus liquidity on Monday, using the Central Bank’s deposit facility at 6.50%, while they borrowed Rs. 2.4 billion using the central bank’s lending facility at 8.00%, official data showed.