Tag Archives: Share market investment in Sri Lanka

Dimantha Mathew, Head of Research at First Capital Holdings, Commenting on the Bond and the Equity Market Performance on Ada Derana – 13.01.2019

Stock Brokers in Sri Lanka

First Capital’s Dimantha Mathew Commenting on the Bond and the Equity Market Performance on Ada Derana

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.

First Capital’s Dimantha Mathew with the Market Review on Ada Derana

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.

Sri Lanka GDP, CPI Outlook Lowered Through 2019

2019-01-11 06:00:00.6 GMT
By Cynthia Li

(Bloomberg) — Economists slashed Sri Lanka growth forecasts for this year after the economy grew at the slowest pace in five quarters, according to the latest quarterly survey conducted by Bloomberg News.

The biggest revisions were for the first and second quarters, both cut by 1.3 percentage points to 3.3 percent and 4 percent respectively. Growth in 2019 overall is expected to average 4 percent, down 0.3 percentage point from last quarter’s survey.

Economists lowered their first quarter inflation forecast by 1.7 percentage point, and also cut estimates for the rest of the year, bringing the annual average to 4.3 percent from 5 percent seen in the October survey. This matches with the central bank’s projection of average inflation to “remain below 5 percent in 2019 and stabilize in the range of 4-5 percent thereafter with appropriate policy adjustments.”

The Central Bank of Sri Lanka is working to implement a flexible inflation targeting framework this year to maintain price stability and drive economic growth.

Benchmark rates are expected to remain unchanged at least until the end of the first quarter of next year, the same poll shows. Some economists said that the economy will stabilize sooner than expected.

“With the slowness in economic growth, once the macro picture stabilizes, we expect two rate cuts during the year 2019 with 25 basis points each,” said Dimantha Mathew, head of research at First Capital Holdings in Colombo.

Weekly Government Securities Market -11-01-2019

Stock Brokers in Sri Lanka

By First Capital Research
Weekly Yield movement & Volume

The secondary market yield curve remained almost unchanged, while moderate volumes were seen during the week.
Despite the continuous depreciation witnessed in previous weeks, currency was seen stabilising around Rs 182.0 levels, closing at Rs 182.8 relative to Rs 182.9 at the beginning of the week.
Meanwhile, CBSL announced its plan for a US$ 400 million swap arrangement with the Reserve Bank of India, with a request for a further US$ 1.0 billion being under consideration, to maintain an adequate level of reserves and support the currency.
At the primary bill auction held on 9 January, yields of the six-month and one-year bills were accepted at 9.94% and 10.85% respectively, recording a continuous dip for the third consecutive week in both maturities.

Meanwhile, first bond auction of the year will be held on 11 January offering Rs 98.0 billion.


Liquidity & CBSL Holdings

CBSL market liquidity remained negative throughout the week, recording the lowest liquidity for the week on 04 January amounting to Rs 121.1 billion. CBSL holdings declined towards the latter part of the week and recorded at Rs 68.56 billion.


Foreign Interest

Foreign holding was recorded at Rs 157.8 billion, recording a drop of Rs 6.6 billion, continuing the foreign selling since August 2018. Foreign holding percentage for the week remained stable at 3.1%.


Maturities for next Week

The Government Securities Market has a Treasury Bill maturity amounting to Rs 18.7 billion to be settled and coupon payment amounting to Rs 12.9 billion for the week ending 18 January.


Daily Summary

Thursday (03.01.19): Secondary market yield curve remained broadly unchanged, while the overall market witnessed thin volumes with limited activity levels. Amidst profit taking, limited activity was witnessed on short-tenure maturities [01.03.21] and [01.05.21] trading at 11.30%, [15.12.21] at 11.35-11.40% levels, while long-tenure maturities [01.08.26] at 11.62-11.67% levels and [15.06.27] at 11.70%.
Friday (04.01.19): On the back of buying interest, short and belly end of the yield curve shifted slightly downwards while the overall market witnessed thin volumes. The one-year bill traded at the day’s lowest of 10.74% amidst the buying interest stemmed predominantly from the foreign counterparties, while three 2021 maturities, [01.03.21], [01.08.21] and [15.12.21] traded at intraday low of 11.22%, 11.25% and 11.28% respectively. Mid-tenure maturities were seen reaching day’s lowest, with [15.05.23] trading at 11.30%, [15.05.25] at 11.63% and [01.08.26] at 11.59%.
Monday (07.01.19): The secondary market yield curve remained broadly unchanged while the overall market witnessed thin volumes. Limited activities were witnessed on short- to mid-tenure maturities with [01.05.20] trading at 11.00%, three 2021 maturities ([01.03.21], [01.05.21] and [15.12.21]) trading between 11.17-11.27% range and [01.10.22] at 11.35%.
Out of the mid-tenors, the three 2023 maturities ([15.05.23], [15.07.23] and [01.09.23]) traded at 11.45%, 11.47% and 11.58% respectively, while [15.03.25] changed hands at 11.67% and [01.08.26] at 11.60%. CBSL has offered Rs 8.0 billion of the six-month and Rs 12 billion of the one-year bills at Wednesday’s primary bill auction.
Tuesday (08.01.19): The secondary market yield curve remained broadly steady, with mixed activities on the short end and belly end of the curve. With the selling interest stemming from foreign counterparties, mid-tenure maturities [01.08.24], [15.03.25] and [01.08.26] traded at day’s high of 11.60%, 11.75-11.80% levels and 11.60-64% levels while ahead of the bill auction.
Buying interest from local counterparties were witnessed on short-tenure maturities [01.05.20] at 10.90-85%, [01.03.21] at 11.25-20% and [15.12.21] at 11.30%, while the overall market saw moderate volumes. CBSL announced bond auction on 11 January, offering Rs 48 billion of new series of [15.12.2023] maturity and Rs 50 billion of [01.09.2028] maturity.
Wednesday (09.01.19): The secondary market yield curve continued to remain broadly steady as market participants were seen remaining on the sideline, adopting a wait-and-see approach ahead of the primary bond auction on 11 January. Limited activity was witnessed on short- to mid-tenure maturities while the overall market witnessed thin volumes.
Short-tenure maturities [01.05.20] traded at 10.90% and three 2021 maturities ([01.03.21], [01.08.21] and [15.12.21]) traded at 11.25%, 11.28% and 11.33% respectively, while mid-tenure maturities 15.07.23 traded at 11.50% and foreign selling was witnessed on [15.03.25] at 11.75%. At the primary bill auction, yields of the six-month and one-year dipped by 1bps and 14bps to be accepted at weighted averages of 9.94% and 10.85% respectively.

Sri Lanka stocks up but turnover at a decade low

Economy Next – 04.01.2019

ECONOMYNEXT – Sri Lanka’s stocks closed 0.1 percent up but turnover was 64 million rupees, the lowest since 64 million rupees hit in November 2009, brokers said.

The Colombo All Share Index closed up 9.18 points at 6077.66 while the S&P SL20 index closed at 3105.75 points up 14.23 percent.

Foreign investors were net buyers of 0.6 million rupees.

“Most investors are taking a wait and see approach,” said Atchuthan Srirangan, Assistant Manager Research at First Capital, a Colombo-based investment house.

“Some investors are not selling because they may think prices are too low, and buyers also think they can buy later after things settle.”

Many brokers are also on holiday, brokers said.

Sri Lanka banking system has also been hit by liquidity shortages since September due to the defence of a soft-pegged exchange rate regime.

Though the liquidity shortages have helped keep inflation at bay they also tend to depress asset prices and business activity.

First Capital “cautiously bullish” on listed stocks

Published on Daily FT on 02 January 2018

Stock Market Investment in Sri Lanka

First Capital Research is “cautiously bullish” over the prospects of investments into listed stocks in 2019 though the Colombo Bourse experienced a 5% dip last year.

In its latest equity strategy report, First Capital said that it was positive on equities hence recommending “buy” but reduce “cash exposure.”

As per the strategy done by analysts Dimantha Mathew, though political uncertainty has settled the battle for policy certainty may continue. It also said that external sector has turned positive favouring the Asian region.

Noting that stock markets usually pass through many phases, First Capital said it rarely reaches fair value and as a result markets either overshoot or over-correct.

“The ASPI we believe has over-corrected and is currently passing through a depression phase and potentially on its way to disbelief stage,” First Capital said.

“Valuations suggest to be attractive relative to CSE’s peer countries, strongly suggesting a healthy range of undervalued stocks,” it added. Most banks, which account for 40% of the equity market, are trading below their book value.

“When the market enters such a phase, it would be a matter of time before an unforeseen event or best known as a black swan even may lead to the market cycle to get converted to phase of “Hope”, which begins a strong bull run,” First Capital Research opined.

It also said that over the past three months (25 September to 24 December 2018), First Capital maintained exposure at 50%, considering earnings hit via depreciation and political unrest affecting sentiment of the market. However during the period the market gained by about 100-120 index points.

“As we step into 2019, we are witnessing the global fund flow reversing towards Asia and commodity prices crashing, with the dip in oil prices benefitting the Balance of Payments position of Sri Lanka and positively affecting Cost of Living,” First Capital said.

“We believe the events that have unfolded may benefit Sri Lanka and the equity market over the next few months, positively impacting earnings and possibly leading to net foreign inflows,” it said. “In view of this outlook, First Capital Research has upgraded its equity exposure to 60% from 50% previously and upgraded ASPI volatility expectations to 6,000-6,500 (from the previous 5,800-6,200) assuming Market Price Earnings Ratio to be 8.5x-9.5x.

In its equity strategy report, First Capital also said that following the re-appointment of “pre-October 26 Government” and passing of the Vote of Account in Parliament, the political uncertainty that prevailed eased off providing financial capability for the Government and its institutions to function beyond 31 December 2018.

“However stability created, is likely to be temporary, as suggested by the differences that were prevalent in the process of appointing the new Cabinet. We expect the divergent views between the President and UNF Government will continue to affect key policy decisions within the Cabinet throughout 2019, up until the Presidential elections due in January 2020,” it added.

In terms of external sector turning positive for Asia, First Capital said that global growth is expected to slow down during 2019, primarily led by the possible impacts arising out of the trade war between the US and China coupled with the downgrade in growth expected in the US economy. The slowdown in the US economy is also likely to result in decelerating the Federal Reserves’ interest rate normalisation process, which may provide some breathing space for most weaker Asian economies. “Global fund flow has already started to reverse towards Asia and emerging markets providing reasonable level of stability to Asian and other emerging markets,” First Capital Research noted.

Increase equity exposure to 60% – Report

One of Sri Lanka’s leading investment banks – First Capital Holdings’ research arm First Capital Research in an ‘Equity Strategy’ report points out that increase in equity exposure from 50% to 60% is favourable amidst an upgrade of All Share Price Index (ASPI) volatility expectations to 6,000-6,500 (up from their previous prediction of 5,800 – 6,200 levels), assuming Market PER (Price to Earnings Ratio) to be 8.5 times – 9.5 times.

“Over the last 3 months from 25th September to 24th December we’ve maintained exposure at 50% considering earnings hit via depreciation and political unrest affecting sentiment of the market” report points out adding that however, during the period market gained by about 100-120 index points.

“As we step into 2019, we are witnessing the global fund flow reversing towards Asia and commodity prices crashing with the dip in oil prices benefiting the BoP position of Sri Lanka and positively affecting Cost of Living” report highlights adding that analysts believe the events that have unfolded may benefit Sri Lanka and the equity market over the next few months positively impacting earnings and possibly leading to net foreign inflows.

“Thereby, we upgrade our equity exposure to 60%” report added.

The report notes that political uncertainty is to settle whilst battle for policy certainty may continue.

“Buy into equities; reduce cash exposure” company’s analyst Dimantha Mathew highlights adding that following the re-appointment of “pre-October 26th Government” and passing of the Vote of Account in Parliament, the political uncertainty that prevailed over the last 8 weeks eased off, providing financial capability for the Government & its institutions to function beyond 31st Dec 2018.

“However, stability created, is likely to be temporary, as suggested by the differences that were prevalent in the process of appointing the new cabinet” the report adds in it is review.

“We expect the divergent views between the President and UNF Government to continue to affect key policy decisions within the cabinet throughout 2019, up until the Presidential elections due in Jan 2020” analyst Dimantha Mathew points out in his report.

Report notes that Global growth is expected to slow down during 2019 primarily led by the possible impacts arising out of the trade war between the US and China coupled with the downgrade in growth expected in the US economy. The slowdown in the US economy is also likely to result in decelerating the Federal Reserve’s interest rate normalization process which may provide some breathing space for most weaker Asian economies. Global fund flow has already started to reverse towards Asia and emerging markets providing reasonable level of stability to Asian and other Emerging Markets.

Sri Lanka stocks fall 5-pct in 2018, outperforms major markets

Economy Next – 31.12.2018

ECONOMYNEXT- Sri Lanka’s stocks have fallen 5 percent over 2018, outperforming major markets in the world which were battered amid Donald Trump’s economic nationalism and Federal Reserve rate hikes.

The Colombo All Share Price Index (ASPI) fell 316 points to 6,052.37 at end of trading on December 31, from 6,369.26  at the last day of trading in 2017 while market capitalization fell by 60 billion rupees to 2.84 trillion rupees , based on stock exchange data.

The index peak of 6,598.73  was reached on February 21, a week after the provincial council elections which strongman Former President Mahinda Rajapaksa won.

The stock market then tumbled gradually to an annual low of 5761.09  on October 19 before recovering to 6,092.21 on November 2, when President Maithripala Sirisena staged an unsuccessful coup against his coalition partner Prime Minister Ranil Wickremesinghe by attempting to replace him with Rajapaksa.

However, foreign sales of Sri Lankan stocks mirrored a regional trend, where investors sold out.

In the US the Dow Jones Index was also down 6.7 percent by December 28, with Trump raising import duties, disrupting trade while the Federal Reserve also raised rates, ending years of loose policy.

China’s Shanghai Composite Index was down 24.59 percent and Japan’s Nikei was down 12.08 percent, data from Bloomberg Newswires showed.

Colombo-based First Capital Research said it expected foreign investors to return to Sri Lanka in 2019.

“As we step into 2019, we are witnessing the global fund flow reversing towards Asia,” the brokerage said in a research note.

First Capital Research said that the ASPI could be expected to fluctuate between 6,000-6,500 in 2019, upgrading the firm’s past projection from 5,800-6,200.

However, it said that political stability created after the ending of the constitutional crisis is temporary and differences between the president and the Wickremesinghe’s United National Front will show in policy making.

Sri Lanka’s central bank which operates a soft-pegged exchange rate has also generated balance of payments pressure by injecting liquidity and defending the currency, which has panicked bond investors.

The rupee depreciated to 183 against the dollar in spot currency markets on December 31, 2018, down 19.7 percent from 152.85 on December 28, 2017. (Colombo/Dec31/2018)

First Capital Research optimistic – Daily News 31-12-2018

Daily News | 31.12.2018

The re-appointment of ‘pre-October 26 Government’ and passing of the Vote of Account in Parliament, and with the political uncertainty that prevailed over the last 8 weeks easing off, has provided financial capability for the Government and its institutions to function beyond 2018 according to a report by First Capital Research.

“Over the last 3 months (25-Sep to 24-Dec) we’ve maintained exposure at 50% considering earnings hit via depreciation and political unrest affecting sentiment of the market. However, during the period market gained by about 100-120 index points.”

“As we step into 2019, we are witnessing the global fund flow reversing towards Asia and commodity prices crashing with the dip in oil prices benefiting the BoP position of Sri Lanka and positively affecting Cost of Living.”

We believe the events that have unfolded may benefit Sri Lanka and the equity market over the next few months positively impacting earnings and possibly leading to net foreign inflows.

Thereby, we upgrade our equity exposure to 60% and upgrade ASPI volatility expectations to 6,000-6,500 (from our previous 5,800 –6,200),” the report adds.

SL keeps December policy rates unchanged – Ceylon Today 29-12-2018

Ceylon Today | 30.12.2018

Sri Lanka to loosen key policy rates in 2019

Sri Lanka might loosen its key policy rates in 2019, with two rate cuts of 25bps each, starting from beyond first quarter 2019, several economists and equity research firms predicted on Friday.
In its December post-monetary policy statement, Colombo-based equity research arm First Capital Research stated that “with below-par GDP growth of 2.9% for 3rd Quarter 2018 and 2018 growth rate likely to fall below the Central Bank of Sri Lanka (CBSL) GDP growth rate expectation of 4.0% coupled with relatively lower debt maturities beyond first quarter 2019 provide room for rate cuts thus warranting economic expansionary policy measures in 2019.

 

“We assume the impact of the policy rate hike which took place in Nov 2018 to materialise during the 1Q2019 thus improving the overly sluggish credit growth and GDP growth levels thereby providing room for the two rate cuts in 2019,” it stated.
Meanwhile, USA Fed reserve officials raised interest rates for the fourth time in 2018 by increasing the rate by 25bps, boosting the benchmark federal rate to 2.50% in December 2018. Policy makers signalled they may soon pause their monetary tightening campaign by trimming the number of rate hikes they foresee in 2019, to two from three.

 

Sri Lanka must accelerate broad-based structural economic reforms without further delay to accelerate its current sluggish economic growth momentum, the Central Bank of Sri Lanka (CBSL) said on Friday. In its December monetary policy meeting statement, CBSL noted that the reduction of the Statutory Reserve Ratio (SRR) at the last monetary policy review in November 2018 released around Rs 90 billion of rupee liquidity to the banking system.
The Monetary Board of the Central Bank of Sri Lanka, at……its meeting held on 27 December 2018, decided to maintain policy interest rates at their current levels. Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) of the Central Bank will remain at 8.00 per cent and 9.00 per cent, respectively.
The full monetary policy meeting statement is reproduced below:
“Monetary Policy Review: No. 8 – 2018
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 27 December 2018, decided to maintain policy interest rates at their current levels.

Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) of the Central Bank will remain at 8.00 per cent and 9.00 per cent, respectively. The Board considered current and expected developments in the domestic economy and the domestic financial markets as well as the global economic environment, with the broad aim of stabilising inflation at mid single digit levels in the medium term to enable the economy to achieve its potential growth.
Subpar economic growth continued in the third quarter of 2018
As per the provisional estimates of the Department of Census and Statistics (DCS), the Sri Lankan economy recorded a modest real GDP growth of 2.9 per cent, year-on-year, during the third quarter of 2018, compared to the revised growth of 3.6 per cent in the second quarter of 2018.

 

As per the available economic indicators and other economic developments, real GDP growth is likely to be low in the fourth quarter of 2018 as well, before picking up gradually in 2019. The continued low economic growth reemphasizes the need for implementing broad based structural reforms without further delay.
Notwithstanding the elevated market interest rates and rupee liquidity deficit, private sector credit growth accelerated
The reduction of the Statutory Reserve Ratio (SRR) at the last monetary policy review in November 2018 released around Rs 90 billion of rupee liquidity to the banking system. However, the liquidity deficit has widened thereafter, and the Central Bank continued its Open Market Operations (OMOs) cautiously to manage liquidity on overnight, short-term and long-term basis as appropriate.

 

Given high credit growth and foreign exchange market developments, overnight interest rates in the money market have been maintained close to the upper bound of the policy rate corridor. Other market interest rates remained at elevated levels, both in nominal and real terms.
In spite of the increased cost of funds and tight liquidity conditions, the year-on-year growth of credit to the private sector accelerated since September 2018, partly reflecting the private sector advancing its activities in anticipation of measures by the government and the Central Bank to curb excessive import growth. Nevertheless, with the contraction in net foreign assets of the banking system, the year-on-year growth of broad money (M2b) remained within the expected levels.
Favourable outlook for inflation in the near term
Headline inflation, based on both the National Consumer Price Index (NCPI) and the Colombo Consumer Price Index (CCPI), remained in low single digit levels.

 

 

Core inflation also remained subdued thus far in 2018. Recent downward adjustments to fuel prices and selected administratively determined prices, as well as the reduction of Special Commodity and telecommunication levies, along with the ongoing recovery in the agriculture sector are expected to impact favourably on inflation in the near term.

 

 

Volatile global commodity prices, possible weather-related disruptions to domestic supply chains due to unpredictable weather patterns, and the possible pass-through of the effect of the rupee depreciation in recent months to domestic prices pose risks to the inflation outlook. The current projections show that inflation, on average, will remain below 5 per cent in 2019 and stabilise in the range of 4-6 per cent thereafter with appropriate policy adjustments.
External sector continues to face international and domestic headwinds
The trade deficit widened further in the first ten months of 2018 with the expansion in import expenditure outpacing the growth of export earnings.

 

However, a moderation in import expenditure is expected, in response to the measures adopted to curb imports of motor vehicles and non-essential goods as well as the impact of the depreciation of the rupee.
While earnings from tourism continued to grow, a slowdown in workers’ remittances was observed. In the financial account, both the government securities market and the Colombo Stock Exchange experienced net outflows of foreign investment, although marginal inflows have been observed in December.
The widening trade deficit, tight conditions in the global markets and excessive speculation in the domestic market exerted pressure on the exchange rate, and the Sri Lankan rupee depreciated by 15.9 per cent against the US dollar thus far during 2018 up to 27 December. Meanwhile, gross official reserves amounted to US$ 7.0 billion at end November 2018, providing an import cover of 3.7 months.
Policy interest rates maintained at current levels
Although inflation remains subdued and economic growth remains below potential, the Monetary Board of the Central Bank was of the view that it is appropriate to continue the current monetary policy stance to stabilise overall economic conditions and domestic financial markets in a context where there has been an uptick in private sector credit as well as continued pressure on external reserves. Accordingly, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels.” (IG)

Hiruni Perera, Senior Research Analyst, at First Capital Holdings PLC commenting on the equity market forecast on Ada Derana – 30.12.2018

Treasury Bills and Bonds Sri Lanka

Hiruni Perera, Senior Research Analyst, at First Capital Holdings PLC commenting on the bond and the equity market performance on Ada Derana

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.

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.