Stock market hit 10-month closing low ahead of CB rate review

Reuters: Shares fell on Monday to an over 10-month closing low, dragged down by beverage and banking stocks, as investors awaited cues from the Central Bank’s monetary policy review on Tuesday.

The Colombo stock index ended 0.8% lower at 6,068.31, its lowest close since 30 March 2016.



Margin calls are expected in the coming days, said an analyst, as the bourse fell below the psychological 6,140-level and the index fell sharply to end only marginally higher than the lower band of the neutral territory.

The index, which had risen from an oversold region, has been trading in the neutral territory since 10 January, with the 14-day relative strength index dropping to 30.474 on Monday, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.

Stocks, which have been declining since October, have been hurt by political uncertainty arising from a decision by the ruling coalition parties to contest local polls separately, and on worries over a rise in market interest rates with yields on 91-day treasury bills hitting near four-year highs last week.

Sri Lanka’s Central Bank could raise its key policy rates in coming months if it skips a chance to tighten next week, a Reuters poll showed, underlining renewed pressure on the rupee after the Federal Reserve’s rate hike last month.

Monday’s market turnover was Rs. 393.8 million ($ 2.62 million), well below this year’s daily average of Rs. 625.5 million.

“Market seen in negative note ahead of the Central Bank rate announcement as many investors expect a rate hike,” said Dimantha Mathew, head of research at First Capital Equities Ltd.

“We may see some margin calls coming in as the index fell below the psychological barrier.”

Foreign investors, who have been net sellers of Rs. 1.29 billion worth of shares so far this year, net bought Rs. 241.3 million worth of equities on Monday.

Shares of Nestle Lanka Plc fell 2.4% while Dialog Axiata Plc fell 2.8% and Hatton National Bank Plc fell 0.9%.