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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.

Weekly Govt Securities Market: One-year T-Bill records 12-week low

By First Capital Research

Weekly Yield Movement & Volume

Amidst the presidential election outcome, the secondary market yield curve shifted downwards across the board on the back of heavy buying interest stemming from both local and foreign counterparts.
Prior to the Presidential election, the yield curve remained broadly unchanged, as market participants remained on the sideline for a clear outcome. Activities were mainly centered on 2021, 2022, 2023, 2024, and 2034 maturities. Post-election, short tenure maturities dipped by 30-45bps, mid tenors fell by 58-71bps, and long tenors shifted downwards by 38-59bps.
At the weekly primary bill auction, three-month and six-month bill yields were accepted at weighted averages of 7.47 per cent and 7.58 per cent, with both dipping by 9bps. The benchmark one-year dipped for the first time in four weeks to be accepted at a weighted average of 8.22 per cent.
In the forex market, the rupee appreciated to close the week at Rs 179.29 from Rs 180.40 held at the beginning of the week.

Liquidity & CBSL Holdings

Volatility in the liquidity was witnessed although it remained positive during the week. The highest excess liquidity for the week was recorded on 20 November amounting to Rs 12.7 billion. Meanwhile, CBSL holdings slightly declined to close at Rs 80.1 billion.

Foreign Interest

Foreign holding in Government Securities increased by Rs 2.2 billion to record at Rs 116.5 billion, while foreign holding percentage remained unchanged at 2.1 per cent.

Maturities for next week

The Government Securities Market has to settle a Treasury bill maturity amounting to Rs 25 billion, and Treasury bond interest of Rs 19.1 billion during the week ending 29 November 2019.

Daily Summary

Thursday (14.11.19): The secondary market yield curve remained broadly unchanged, while the overall market witnessed thin volumes as investors followed a wait-and-see approach ahead of the Presidential Election. In the belly end of the yield curve, [15.09.24] traded at 10.07 per cent, while [15.10.27] saw its yield ranging between 10.31-10.32 per cent. With the buying interest, long tenor [15.09.34] changed hands at 10.72-10.70 per cent. Meanwhile, at the bond buy back held under open market operations, a total of Rs 3.0 billion was accepted with [15.03.22], [01.07.22] and [01.10.22] being accepted at weighted averages of 9.02 per cent, 9.12 per cent and 9.20 per cent.
Friday (15.11.19): The secondary market yield curve remained unchanged, while the overall market witnessed thin volumes ahead of the Presidential Election. Limited activity was seen on [15.09.24] trading at 10.07-10.05 per cent levels and [15.10.27] trading at 10.33-10.35 per cent levels.
Monday (18.11.19): With the outcome of the Presidential Election, the secondary bond market experienced a bullish sentiment, with heavy buying interest across the board resulting in the yield curve shifting downwards.

With the buying interest, in the short end of the yield curve, the one-year T bill reached 8.50 per cent, while [15.12.21] reached 8.69 per cent. Moreover, [15.03.23], [15.07.23] and [15.12.23] reached intra-day lows of 9.35 per cent, 9.50 per cent and 9.55 per cent, respectively. In the midst of heavy volumes, [15.03.24], [15.06.24] and [15.09.24] saw yields trading at intra-day lows of 9.80 per cent, 9.77 per cent and 9.80 per cent, while [15.10.27] reached the day’s low of 10.08 per cent.
Tuesday (19.11.19): In the secondary market, the positive sentiment continued for the second consecutive day after Presidential Election results, with heavy buying interest witnessed across the yield curve from both local and foreign counterparties with high volumes. The yield curve shifted downwards across the board, while the benchmark one-year was seen trading at day’s low of 8.30 per cent.