Sri Lankan shares hit 10-mth closing low ahead of cbank rate review

FIRST CAPITAL’S HEAD OF RESEARCH, DIMANTHA MATHEW, SPEAKS TO REUTERS.

Sri Lankan 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 percent lower at 6,068.31, it’s lowest close since March 30, 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 Jan. 10, 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.

Sri Lankan 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 393.8 million rupees ($2.62 million), well below this year’s daily average of 625.5 million rupees.

“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 (Pvt) 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 1.29 billion rupees worth of shares so far this year, net bought 241.3 million rupees worth of equities on Monday.

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

($1 = 150.2500 Sri Lankan rupees)

(Reporting by Ranga Sirilal; Editing by Amrutha Gayathri)

The comments on this report are provided by the Capital Markets Research Unit of First Capital Holdings PLC an investment bank in Sri Lanka.

The company operates in the capital markets of Sri Lanka in government securities – treasury bills and bonds, stock brokering and share market investments, asset management, private wealth management,  retirement planning, personal financial planning, unit trust, margin trading, capital market research, trustee services, corporate finance advisory services including corporate debt structuring (debentures, trust certificates, commercial papers), valuations, restructuring, mergers and acquisitions, initial public offerings (IPOs) and project advisory.

The First Capital Group consists of First Capital Treasuries PLC, First Capital Limited, First Capital Markets Limited, First Capital Asset Management Limited and First Capital Equities (Private) Limited covering Colombo, Negombo, Matara, Kandy and Kurunegala.