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‘Financial disintermediation, need of the hour’ – Daily News

Investment banks in Sri Lanka, Investment banking in Sri Lanka, Investment companies in Sri Lanka, Share market Investment in Sri Lanka
Investment banks in Sri Lanka, Investment banking in Sri Lanka, Investment companies in Sri Lanka, Share market Investment in Sri Lanka

These sentiments were expressed by First Capital Holdings PLC, Senior Manager – Corporate Finance, Mahesh Amarasinghe to the Daily News.

Sri Lanka is too dependent on banks and financial institutions and it is of much importance to acknowledge the importance of the capital market. Banks and financial institutions are limiting both corporate and investors. What we need is a financial disintermediation, which would permit investors to access the capital market directly for cheaper funding.

Bringing down interest rates should be a priority, since Sri Lanka has probably one of the highest real interest rates in the world.

“For a business operating in Sri Lanka, the cost of capital is significantly higher than any where else in the world. We as an organization, have been advocating for better access to capital and we suggest that that banks and finance companies be incentivized to lend for investment, rather than consumption, because when interest rates are brought down, people use credit for consumption purposes and not contribute to the growth of the economy.

On the other hand, financial disintermediation means that Issuers or Borrowers – the companies that are seeking funds to grow should look beyond traditional sources of funds such as banking and financial institutions and find opportunities to directly access investors to directly get involved and lend to projects.

“This is what a vibrant capital market could do to grow business.”

“This is where Corporate Finance has a significant role to play as a full service investment bank operating in both debt and equity markets. We understand the changing economic and industry trends and provide both Issuers and Investors with new opportunities for businesses at attractive rates.

He commenting that the problem is that most lending entities too have traditional mind-sets on how they approach lending.

“For example, despite the prevalence and growth of IT, digital, and data-related companies, many banks are still reluctant to lend to them, as they have less understanding about the business, how it runs and how it could make profits.”

“In addition, we as Sri Lankans, have very little financial literacy so it makes life harder for entities looking for funding to pitch their proposals in an attractive manner.”

“Our teams are able to study and understand the financial position of corporates and structure customized solutions that are on their terms such as what rates they would wish to borrow at, if they are fixed or floating, matching cash flow and growth requirements of companies.”

On the other hand, investors are finding it difficult to place their funds due to caps on interest rates. “Traditionally, Sri Lankans are used to a financial landscape where people make deposits to banks and banks keep a margin and lend to businesses they perceive to be risk-free, but not really contributing to the economy.”

He said that the teams at First Capital would advise a client how the investor looks at the company and we advise on how to improve.

“When we see liquidity decreasing, our advise is to get the funding now, as we see trends of lack of liquidity in the market, while and these are part of the services we offer.”

Corporate Finance creates a more robust capital market structure that actually provide investors the opportunity of going directly into businesses and earn higher interest rates in addition to the security that is behind this type of instrument. “If you put a Fixed Deposit it’s just between you and the bank of the institution, whereas this would have a trustee, regulator if listed, a security to back the funds.”

We are a sponsor for SMEs to list them in the Empower Board. Specific license.

He also opined that listing or unlisted debt, there is a cost benefit to the issuer. So we advise them accordingly. Although unlisted costs less, sometimes it is better for a company’s brand or name if they are a listed with a publicized IPO.”

“IPOs are an ideal way for an investor who had not invested in this type of product earlier, because it is highly regulated with the CSE and SEC monitoring, a rating agency and a trustee and many other participants securing the process.”

Also for someone subscribing to a debt IPO, there is a set exit mechanism, because they could trade it on the secondary market.

“However, with the previously offered tax benefits no longer applicable, there is a significant benefit for corporates to do an unlisted issue, but to do so, there must be qualified investors who are experienced and understand the risks of the product.”

He said that they would look into it and would judge as to how these projects must be structured for the company to make the best of it. “Or we also would offer finding investment opportunities for investors who are looking for opportunities in the Securities Market for private placements or public offerings.”

Amarasinghe and his team recently closed a Rs. 5 billion Debenture for LOLC in a market where the company is over exposed.

Amarasinghe counts over 18 years of significant experience in Treasury and Securities Management through business operations and expertise gained as a Primary Dealer in and a Secondary Dealer of a range of fixed income securities.

He has extensive exposure in front and back-office operations and in customer relations in financial services.

See full article >>

Sri Lankan shares, rupee gain after tax cuts; policy rates awaited

COLOMBO, Nov 28 (Reuters) – Sri Lankan shares and rupee ended higher on Thursday, a day after the government said it has decided to reduce value-added tax to 8% from 15% with effect from Dec. 1, along with plans to abolish some other taxes as well.

** The gains also come a day ahead of the central bank’s key monetary policy rate decision, which is likely to be left steady at a policy review on Friday, a Reuters poll indicated.

** The benchmark stock index jumped 1.34% to 6,201.12, its highest since June 25, 2018. The bourse gained 1.6% last week, and is up 1.10% for the year.

** Analysts said positive sentiment surrounding tax cuts by the country’s newly elected president helped.

** “The market expects a booming consumer demand due to the tax cut,” said Dimantha Mathew, head of research at brokerage First Capital Holdings.

** The rupee ended 0.11% firmer at 180.60/80 per dollar, compared to Wednesday’s close of 181.80/181.10, Refinitiv data showed. It is up 0.5% so far this year.

** Foreign investors were net sellers for 23 sessions out of 25.

** They sold a net 821.2 million rupees ($4.56 million) worth of shares on Thursday, extending the net selling so far this year to 10.3 billion rupees worth of equities, according to index data.

** Equity market turnover was 2.78 billion rupees, more than this year’s daily average of about 721 million rupees. Last year’s daily average was 834 million rupees.

** Meanwhile, foreign investors were net buyers of government securities on a net basis for the fifth straight week, purchasing a net 0.21 million rupees worth of government securities in the week ended Nov. 20.

** Total foreign outflows from government securities through Nov. 20 stood at 48 billion rupees, according to central bank data.

** For a report on global markets, click ** For a report on major currencies, click

$1 = 180.0000 Sri Lankan rupees
Reporting by Shihar Aneez; Editing by Shounak Dasgupta

Our Standards: The Thomson Reuters Trust Principles.

Dimantha Mathew, Head of Research at First Capital giving a special comment to Ada Derana on the impact of tax cuts to the share market performance – 28.11.2019

Dimantha Mathew, Head of Research at First Capital giving a special comment to Ada Derana on the impact of tax cuts to the share market performance.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Dimantha Mathew, Head of Research at First Capital commenting on the stock market performance and the impact of tax cuts – 27.11.2019

Dimantha Mathew, Head of Research at First Capital commenting on the stock market performance and the impact of tax cuts.

“Stock market closed in positive sentiment for the second straight session on the price gains incurred by JKH and CTC. Both turnover and volume recorded a near one week high while the crossings made in DIAL contributed 34% to the day’s turnover.”

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond market performance and upcoming monetary policy announcement – 26.11.2019

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond market performance and upcoming monetary policy announcement.

“In the bond market the secondary market yield curve shifted slightly upwards with the profit taking while overall market witnessed moderate volumes during the day. In the upcoming policy announcement, First Capital Research does not rule out a possibility of a rate cut though at a lower probability of 40% in November. However, we are more biased towards a rate cut in Dec 2019 considering the risk in lower liquidity position.”

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

First Capital says door open for another rate cut

A third rate cut for this year, despite forecasting to the contrary prior to the recently concluded presidential election, was not ruled out by First Capital Research, the research arm of a leading Colombo-based investment bank.
The Monetary Board of the Central Bank is set to announce the seventh monetary policy review for this year on Friday. The Central Bank has slashed policy rates twice so far this year, in May and August—50 basis points each.


Although in their October pre-policy analysis, First Capital Research maintained that there would be no more rate cuts this year, in its latest pre-policy analysis released yesterday, the research firm said it was revising its previous stance “considering the recent changes in the political and economical landscape of the country and external outlook for Sri Lanka”.
“Despite the 50bps rate cuts each in May and August, First Capital Research believes that door is open for a rate cut considering the need to address the sluggishness in economic activity,” the pre-policy analysis said.
“Accordingly, we do not rule out a possibility of a rate cut though at a lower probability of 40 percent. We are more biased towards a rate cut in December 2019, considering the risk in lower liquidity position,” it added.

Explaining the rationale behind their forecast, First Capital Research said strengthening macroeconomic indicators and the current high yields have been slowly attracting foreign inflows, which is likely to further accelerate post-presidential election amid easing political uncertainty to a certain extent.
However, last week, Fitch Ratings in a report said the election outcome increases the policy uncertainty in Sri Lanka.
First Capital Research also believes more supportive economic policies will be implemented by the new administration amid the overly sluggish economic growth.
Sri Lanka’s GDP grew 1.6 percent in the second quarter of 2019, impacted by the Easter attacks in April. Private sector credit growth remains negligible with January-September growth at 2.13 percent.
Despite the Central Bank cutting rates, the decline in market interest rates has been slow amid high level of non-performing loans in the system, which compelled the Central Bank to slap lending interest caps on banks.
Following the completion of the presidential election, business activity and credit growth have shown slow progress but continue to remain below expectations calling for further monetary easing.
Meanwhile, First Capital Research also pointed out that the Sri Lankan rupee has been strengthening over the past couple of weeks.
“We believe a significantly undervalued rupee and lower credit growth, provides room for the CBSL to buy dollars, strengthening the reserves and increasing liquidity in the system.”
Talking about the external developments that may lead the Central Bank to cut rates again, the research firm cited the benchmark overnight lending rate cut by the US Federal Reserve in late October by a quarter a point.
“The global move towards easing monetary policy creates a supportive environment for Sri Lanka to provide further easing in the domestic economy,” First Capital Research said.
The Monetary Board of the Central Bank currently maintains Standing Deposit Facility Rates at 7 percent and Standing lending Facility Rate at 8 percent. The Statutory Reserve Ratio is maintained at 5 percent.

 

 

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and stock market performance – 25.11.2019

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and stock market performance.

“In the bond market the secondary market yield curve shifted slightly upwards with the profit taking while overall market witnessed low volumes during the day. Equity market, started the week on negative note, on the price losses made by DIST and SLTL.”

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

CSE toasts new President

By Duruthu Edirimuni Chandrasekera

View(s): 397

It doesn’t come as a big surprise that immediately after the big political changes, the stock market always reacts positively.

This was seen when President Maithripala Sirisena came to power in January 2015 and in October 2018 when Mahinda Rajapaksa was sworn in as the Prime Minister. On Monday, the same scene unfolded a day after Gotabaya Rajapaksa was elected President. “Always when changes happen the market acts positively. We have always seen the market moving up to 100 points after these crucial events,” Atchuthan Srirangan, Assistant Manager Research (Fixed Income Equities), First Capital Holdings told the Business Times. He added that always with such political changes the market participants are upbeat. But analysts say this trend doesn’t necessarily sustain. The Colombo bourse closed high on Friday having risen throughout on Monday with brokers and investors cheering the new President.

“From the second day itself – that is Tuesday – we saw profit-taking and then the market was on a slightly sideways trend,” Mr. Srirangan said. Friday morning saw the market 50 points up in the early hours but within 15 minutes, it was 30 points down. A market analyst noted that this was the trend from Monday onwards till Friday. The Colombo Stock Exchange (CSE) was down 19.06 per cent to close at 6,119.27 on Friday with the S&P losing 6.35 per cent to end at 3,022.

However the analyst said that there is a clear upward trend. The market has been booking high turnovers since the October 31 to November 15, he said noting that such numbers also didn’t come as a surprise. On October 31 the turnover was Rs. 2 billion, November 1 it was Rs.1 .7 billion, November 5 it was Rs. 1.9 billion and November 13 it was Rs. 2.01 billion. The reason for this being, the analyst explained, when elections approach, based on the perception of stability the investors take a bet. This was why the turnovers were high at varying times.

“Investors are waiting for a signal on the general elections in two months,” the second analyst said explaining that the market performance can be analysed thereafter.

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market forecast – 24.11.2019

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market forecast.

“In the bond market we expect activity to slowdown drastically with the monetary policy announcement due on Friday. Yield curve is likely to remain stagnant up until the announcement is given. In the equity market we expect mixed reactions.”

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.