Stock market’s suffering soars

Tuesday, 19 January 2016 00:05 - - {{hitsCtrl.values.hits}}

Market loses Rs. 238 b in value in 10 days on top of Rs. 255 b lost in 2015
Dip of a single point in ASI amounts to Rs. 420 m loss
Failure of market and eroding value impacts over 600,000 investors
Over Rs. 60 b loss of capital for listed firms due to Super Gains Tax; analysts put loss of potential future investment at Rs. 200 b

The Colombo stock market is continuing to suffer as it loses value at a persistent and worsening rate, causing serious concern among investors, apart from baffling the Government and capital market officials.

The market lost a staggering Rs. 255 billion in value last year and so far this year with just 18 calendar days gone the suffering is Rs. 238 billion. Analysts said that the benchmark index ASI’s drop of a single point causes Rs. 420 million loss in value.

Yesterday the market was down by a further 124 points.

In 2015 it was down by 603 points and so far in 2016 it is down by over 500 points. For the first time in three years the market produced a negative return of 6% in 2015. As of yesterday ASPI is down 8% and S&P SL 20 Index is down 9%.

Analysts claimed that around 600,000 stock market investors, especially retailers, are the hardest hit by the relentless loss of value.

The continuous decline and relatively low activity and turnover, apart from lack of foreign buying, have baffled the Government, which otherwise was upbeat of revival in investor sentiment and capital market activity since the 8 January 2015 Yahapalana victory.

Brokers’ frustration has worsened with many finding it difficult to sustain operations and staff. Capital market developers and regulators however remain hopeful of a rebound thought it remains elusive.

Whilst external developments, especially volatile global markets, may have contributed to Colombo’s downfall, most analysts pinned the greater blame on some of the controversial revenue proposals of the Government, among other moves.

For example, analysts argued that the disastrous Super Gains Tax (SGT) led to a decline in net asset value of listed companies in the quarter ended December 2015.

Though the Finance Ministry was elated with the above-normal haul of revenue via SGT, which is estimated to be between Rs. 60 and Rs. 80 billion, analysts said that most firms borrowed to pay the one-off but draconian tax.

“This borrowing as well as additional tax liability in 2016 for several firms has led to a downgrade in future earnings. Whilst the necessary speculative trading is absent, even those who invest based on fundamentals are on the sidelines,” they opined.

The SGT blow also meant an equal amount of investible funds for business growth or diversification was lost. “The SGT killed a potential Rs. 200 billion in future investments,” they added.

Government moves causing loss of investor confidence and optimism have overshadowed the customary blame on an excessive or stiff regulatory regime.

Colombo Stock Exchange officials recently linked the downturn in 2015 for it being an election year as well as to external developments.

“The market performance was not encouraging with drop in indices and volumes. The performance could be attributed to 2015 being an election year and due to local and global economic conditions. However, many significant and important market development activities were initiated during the course of 2015,” CSE Chief Executive Officer Rajeeva Bandaranaiake told FT in early January.

However, Bandaranaike expressed hope that the market would turnaround by end of this year or by early next year.

Rupee falls on importer dollar demand

Reuters: The rupee fell on Monday as importer dollar demand outpaced selling of the greenback by a private bank possibly to defend the local currency, dealers said.

The private bank sold dollars at Rs. 143.90 levels to select traders, they said, with some saying it might have sold the greenback on behalf of the Central Bank.

Officials at the Central Bank were not available for comment.

The rupee ended at 144.00/20 per dollar, down 0.1% from Thursday’s close of 143.85/95. Markets were closed on Friday for a Hindu religious holiday.

“A private bank sold dollars at 143.90. But demand was higher and exporters were not selling (dollars) on expectations the rupee would weaken further,” said a currency dealer, asking not to be named.

The market, however, expects depreciation pressure on the rupee to ease due to a rise in commercial banks’ statutory reserve ratio by 150 basis points from 16 January and on expected inflows from foreign deposits.

The yield on 91-day T-bills has risen 40 basis points to a more than three-month high of 6.78% in three weekly auctions since the 30 December monetary policy announcement.

Commercial banks parked Rs. 10.623 billion ($73.77 million) of surplus liquidity on Monday using the Central Bank’s deposit facility at 6%, official data showed.