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Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance – 12.02.2020

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

“Secondary bond market witnessed an uptrend from the outcome of today’s bill auction. Stock market bourse ended in red for the fourth straight session on the price losses made in COMB and LOLC.”

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.

Nisansala Kuruppumudali, Research Analyst at First Capital commenting on the stock market performance

“With the spreading fears of a virus impact on economies across the world, Sri Lankan ASPI too reacted negatively with the deadly corona virus making its way into the island. The benchmark index fell for the second straight session whilst volumes were recorded at LKR 256Mn………”

Nisansala Kuruppumudali, Research Analyst at First Capital commenting on the stock market performance.  #CSE #CBSL #lka

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.

Sri Lanka’s rupee was little changed ahead of the release of December national inflation data.

(Bloomberg) — Sri Lanka’s rupee was little changed ahead of the release of December national inflation data.

* USD/LKR steady at 181.30

* National CPI data due at 3pm local time; no forecast, prices rose 4.1% y/y in November

* “There maybe a bit of pressure from food inflation with some supply side issues, “says Dimantha Mathew, head of research at First Capital Holdings in Colombo

** Sees the rupee supported by foreign buying into the short end of the nation’s bond yield curve

* Yield on nation’s 10.25% bond due June 2024 fell 2bps Monday to 9.55%

* Overseas investors sold a net $1.9m of local shares Monday, taking withdrawals for January to $6.2m: exchange data

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance – 16.01.2020

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.

Lessons from history; time to unload

By First Capital Research

Previous Fixed Income Report – Increase exposure in mid-long tenor bonds
In line with our expectations with the easing of political uncertainty post-Presidential Election, coupled with a favourable macro environment, bond yields eased off towards our targeted bottom bands of the yield curve. The favourites that we recommended, 2023 and 2024 maturities, saw a sharp dip in yields, creating heavy capital gains.

Recent hefty tax cuts may lead to fiscal slippage: The recently announced hefty stimulus package may cause fiscal slippage, in light of the estimated loss to the Government revenue. Reduction in tax revenue and uncertainty in all other indicators (foreign reserves, inflation and exchange rate) may significantly deteriorate macroeconomic conditions and increase volatility of interest rates. Accordingly, we lower our First Capital Economic Health Score for the bond market for the next couple of quarters.
Reduce exposure in Trading Portfolio: The Bond market yield curve is currently trading at the lower bands of the First Capital Research yield curve expectations. In our Bond Portfolio, our current investment is assumed to have 50% exposure with 35% into trading portfolio and 15% in carrying portfolio. With the present macroeconomic environment, we recommend completely exiting the trading portfolio, considering the volatile environment, while maintaining exposure in the carrying portfolio. We recommend avoiding accumulation in the secondary market to bid for the auctions.

Portfolio Recommendation:

Reduce overall portfolio to 15% from 50%, cut Trading Portfolio to 0% from 35%, and maintain Carrying Portfolio at 15%.

Sri Lanka plantations could cover wage hike with economic relief package: Minister

ECONOMYNEXT – Sri Lanka’s plantations firms will be given benefits in the form of free fertilizer, tax cuts and credit support, which would give space for them to give salary hike decreed by President Gotabaya Rajapaksa workers, co-cabinet spokesman Romesh Pathirana said.

“We are hopeful that they should be able to pay these wages because we have provided a economic relief package,” Minister Pathirana said.

“There is also a revival program for tea sector – the tea sector modernization program- that is why we said we need an efficient workforce for which we need to satisfy them.

“This is a long standing request from the estate sector worker the politicians and trade unions to increase the wages to 1000 rupees.

“And this was a promise given by Excellency the President Gotabaya Rajapaksa, so we have fulfilled that pledge.”

The cabinet of minister had approved the decree to raise the daily wage to 1000 rupees from the current 700 rupees from March 01.

When the salary was hiked last February from 500 rupees to 700 a day regional plantations companies said the cost would be around 350 million rupees a year, based on the workforce. Firms have between 7,000 to 8,000 workers and are committed to giving 20 days of work.

The government in 2019 said a 50 rupee a month supplement would be given for a year from tax payer money.

Minister Pathirana said the tea estates should be makings savings on fertilizer and tax cuts which could be channeled to the workers.

“We have spoken to them (plantations companies) and given the financial relief package also considering that we are providing fertilizer free they should be able to manage it,” he said.

“They should be able to manage it because we have given reduction in VAT, Economic Service Charge. So there is a moratorium in relation to loan, we are going to cut down interest, so considering all that they should be able to fall in line and provide relief to the estate workers.”

It is not clear whether any savings from fertilizer and taxes will fully cover the wage costs.

A senior official of the Planter’s Association which represents plantations companies said they were still working out the impact and were not able to comment on Wednesday, a religious holiday in Sri Lanka.

Though there expectations that tea prices will pick up in line with other global commodities which have already gone up, any sanctions on Iran may affect demand for tea.

“Many tea companies are already making losses,” Atchuthan Srirangan Assistant Manager Research at First Capital Holdings, an investment banks said.

“The profitability of plantations companies will be affected.”

Last year stock prices dropped after a the wage hike, which however was expected as it was a negotiated collective agreement. (Colombo/Jan15/2020)