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Improving macro stability, lower yields may strengthen equity returns

LBO | 04.07.2019

July 04, 2019 (LBO) – Despite the Easter Sunday attacks Sri Lanka’s economic outlook has shown signs of resilience and ability to recover quickly as economic activities were seen returning to normalcy while removal of travel advisories was faster than anticipated, First Capital said in their latest equity strategy.

The research firm believes that the impact of the unfortunate attacks and the subsequent events has now been factored into the market and an accelerated recovery is more likely than not.

Sovereign Bond issuance supports lower yields

First Capital noted that the successful and early issuance of the 2 billion dollars sovereign bond by the CBSL is a major confidence booster and the heavy interest which was reflected by the 3x oversubscription is encouraging.

“With most economic indicators such as inflation, credit growth and liquidity suggests a decline in yields, strong reserve position supports the sustainability of the lower yields,” the firm said.

“In line with expectations Bank 1 Year FD ceiling has fallen to 9.83% as of 1 st Jul 2019.”

Market Earnings to improve from 4Q2019 onwards

The heavy decline in interest rates is expected to lower finance costs, thereby improving earnings of most listed entities towards 4Q2019.

Lower Fixed Income returns may lead investors to hunt for alternative investment options with higher returns, of which equity investments are likely to be a more probable option considering the current attractive valuations.

“Thereby we expect an improvement in demand for stocks leading to a possible re-rating of the market,” the firm said.

Increase equity portfolio by investing 25% of the balance cash into SAMP

First Capital said with the rights issue being fully subscribed, SAMP is correctly cash heavy with the ability to maintain lending growth well above the industry while capturing market share.

“We are bullish on SAMP and recommend investors to invest 25% of the balance cash allocation into SAMP increasing equity portion of the portfolio to 69%.”

 

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 is an investment bank providing a full range of financial advisory and services. The Company’s research delivers a heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.

Hiruni Perera, Senior Research Analyst, at First Capital on the bond and equity market performance – 03.07.2019

Treasury Bills and Bonds in Sri Lanka

Hiruni Perera, Senior Research Analyst, at First Capital on the bond and equity market performance – 03.07.2019

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 on the bond and equity market performance – 02.07.2019

Dimantha Mathew, Head of Research, at First Capital on the bond and equity market performance – 02.07.2019

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research delivers a heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment 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.

Atchuthan Srirangan, Assistant Manager – Research, at First Capital on the Bond and equity Market performance – 01.07.2019

Treasury Bills and Bonds in Sri Lanka

Atchuthan Srirangan, Assistant Manager – Research, at First Capital on the bond and equity market performance – 01.07.2019

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research delivers a heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment 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.

Weekly Yield movement & Volume by First Capital Research

CEYLON TODAY | 01.07.2019

Investment in Sri Lanka

The secondary market yield curve shifted downwards across the board on the back of bullish outcomes witnessed at the international sovereign bond issuance and both local primary auctions held recently. Notably, the secondary market participants reacted on a positive note for this year’s second ISB issuance to raise US$ 2.0 billion, which propelled a heavy buying interest in the market.
At the weekly primary bill auction, the three-month, six-month and one-year were accepted at weighted averages of 8.24 per cent, 8.49 per cent and 8.70 per cent respectively. Furthermore, with the outcome of the bill auction, the one-year bill closed the day at 8.55 per cent.
Retrospectively, at the Treasury bond auction (27 June 2019) the total offered amount of Rs 125.0 billion was fully accepted, with [15.06.24] and [15.03.35] accepted at weighted averages of 9.83 per cent and 10.59 per cent, respectively. In the forex market, the rupee appreciated mid-week to Rs 176.45, prior to closing at Rs 176.51 on 27 June relative to Rs 176.72 at the beginning of the week.

 
Liquidity & CBSL Holdings
Market liquidity remained positive throughout the week to close at Rs 53.2 billion, while CBSL continued to drain out liquidity by way of term repo auctions during the week. CBSL holdings spiked to Rs 371.4 billion mid-week, prior to normalising at previous levels of Rs 128.1 billion held at the beginning of the week.

 
Foreign interest
Foreign holding in Government Securities increased by Rs 0.9 billion to record at Rs 143.8 billion. Foreign holding percentage for the week was maintained at 2.6 per cent.

 

Maturities for next week
The Government Security Market has to settle a Treasury bill maturity, amounting to Rs 23.2 billion and a treasury bond amounting to Rs 109.6 billion. In addition, a T-bond interest amounting to Rs 43.7 billion needs to be settled during the week ending 5 July 2019.

 
Daily summary
Thursday (20.06.19): The secondary market yield curve remained relatively unchanged, while the overall market witnessed thin volumes. Buying interest with limited activity was primarily centered on the following maturities with shorter tenure maturities [01.05.21], [15.10.21] and [15.12.21] trading at 9.50 per cent, 9.60 per cent and 9.65 per cent, while [15.07.23] changed hands at 10.05 per cent.

 
Friday (21.06.19): The secondary bond market witnessed heavy buying interest with high level of activities, resulting in the overall yield curve to shift downwards. On the shorter end of the curve, yields of [01.03.21], [01.05.21], [15.10.21] and [15.12.21] maturities were seen dipping to day’s lows of 9.30 per cent, 9.40 per cent, 9.45 per cent and 9.53 per cent, respectively. In 2022 maturities, [15.03.22] and [01.10.22] traded at intra day’s low of 9.80 per cent. Furthermore, mid tenor [15.03.23], [15.07.23], [15.03.24] and [01.08.26] traded at day’s lows of 9.90 per cent, 9.84 per cent, 10.05 per cent and 10.30 per cent, respectively. Meanwhile [15.01.27] traded at levels of 10.37 per cent.

 
Monday (24.06.19): The secondary bond market commenced the week on a bullish note, as the market participants reacted to the announcement of the second international sovereign bond this year to raise US$ 2.5 billion, which led to heavy buying interest and downward shift in yields across the curve. During the day, the market witnessed high volumes with the following maturities reaching intraday lows: [01.08.21] at 9.32 per cent, [15.10.21] at 9.35 per cent, [15.12.21] at 9.45 per cent and [01.10.22] at 9.74 per cent. In the belly-end of the curve, the following maturities were seen dipping to day’s lows with [15.03.23] trading at 9.85 per cent, [15.07.23] at 9.90 per cent, [15.03.24] at 9.97 per cent and [15.01.27] at 10.30 per cent. In the long end of the curve, [01.05.29] was seen trading at levels of 10.45 per cent. Meanwhile, CBSL also announced an issue of Rs 125.0 billion worth of bonds through the bond auction to be held on 27 June.

 
Tuesday (25.06.19): The secondary market yield curve remained relatively steady, while the overall market witnessed high volumes. Buying interest with limited activity was seen on the shorter end of the curve with [01.03.21], [15.10.21] and [15.12.21] trading at day’s low of 9.18 per cent, 9.35 per cent and 9.40 per cent, respectively, while foreign selling was witnessed on [01.08.21] at 9.35 per cent. Buying interest was seen on the following mid tenure maturities [15.03.23], [15.07.23], [15.12.23], [15.03.24] trading at an intraday low of 9.83 per cent, 9.87 per cent, 9.90 per cent and 9.97 per cent. CBSL has offered Rs 16.5 billion comprising all three maturities for weekly T-bill auction scheduled to be held on 26 June 2019.

 
Wednesday (26.06.19): With the positive momentum gathered from the successful issuance of the ISB, the secondary market witnessed aggressive buying interest, while shifting yields downwards across the board, with the overall market witnessing high volumes for the day. In the midst of buying interest, short tenor [01.03.21] was seen trading at day’s low of 9.00 per cent, while [01.05.21], [01.08.21], [15.10.21] and [15.12.21] maturities were seen trading at intra-day’s low of 9.20 per cent.

 
Furthermore, [01.01.22] and [15.03.22] were seen trading at intra-day’s low of 9.65 per cent, while [01.10.22] traded at 9.60 per cent. In the belly-end of the curve, [15.03.23], [15.05.23], [15.12.23], [15.03.24] and [15.01.27] were seen trading in the levels of 9.80 per cent, 9.83 per cent, 9.80 per cent, 9.90 per cent and 10.16 per cent respectively. Long tenor [01.05.29] traded at 10.38 per cent. Meanwhile at the weekly bill auction, yields of the three-month, six-month and one-year declined by 14, 11 and 16bps to 8.24 per cent, 8.49 per cent and 8.70 per cent, respectively. Furthermore, with the outcome of the bill auction, the one-year bill closed the day at 8.55 per cent level.

 
Thursday (27.06.19): The secondary market yield curve remained broadly unchanged, while the overall market witnessed moderate volumes. At the Treasury bond auction, the total offered amount of Rs 125.0 billion was fully accepted, with [15.06.24] and [15.03.35] accepted at weighted averages of 9.83 per cent and 10.59 per cent respectively. Post auction profit taking was seen at moderate volumes, with [15.03.24] trading at 9.85-9.95 per cent levels.

 

The newly accepted bond [15.06.24] traded at 9.90 per cent after being accepted at a notable weighted average of 9.83 per cent. Business was done on the following maturities with [15.10.21] trading at 9.25-9.30 per cent levels, [15.03.24] at 9.95 per cent, [15.06.24] at 9.95 per cent, [15.01.27] at 10.20 per cent, [15.06.27] at 10.40 per cent, [01.05.29] at 10.35 per cent and [15.05.30] at 10.45 per cent.

Dimantha Mathew, Head of Research, at First Capital on the bond and equity market forecast – 30.06.2019

Treasury Bills and Bonds in Sri Lanka

Dimantha Mathew, Head of Research, at First Capital on the bond and equity market performance – 30.06.2019

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.