Tag Archives: Capital Market Research Sri Lanka

Weekly Govt Securities Market Steep decline of 1-Yr T-bill to 9.18%

CEYLON TODAY | 17.05.2019

Treasury Bills and Bonds in Sri Lanka

By First Capital Research

Weekly Yield movement & Volume

The secondary market yield curve was seen once again recording a parallel shift downwards, on the back of heavy buying interest primarily centred on the short to mid tenor maturities. The shorter end of the curve witnessed a steep decline in the range of 7-15bps, while the benchmark 364-day bill was seen trading at an intraday low of 9.15 per cent. In the belly-end of the curve, maturities were seen dropping by 2-15bps, while the long tenors witnessed a dip in yields by 3bps.
At the primary bill auction held on 15 May, the three-month and six-month were accepted at a weighted average of 8.52 per cent and 8.88 per cent, respectively, while the benchmark one-year witnessed a steep dip by 26bps to record at 9.18 per cent following its previous week’s dip of 37bps. Post auction, on the back of buying interest one-year bill dipped further to close the day at 9.10 per cent.
Meanwhile, in the forex market, the rupee depreciated mid-week to Rs 176.74 from opening levels of Rs 174.90/10, thereafter, the rupee slightly appreciated to close the week at Rs 176.17.


Liquidity and CBSL Holdings

Market liquidity remained positive throughout the week to close the week at Rs 25.05 billion on the back of release of long-delayed payments by the Government. CBSL continued to drain out liquidity by way of repo auctions throughout the week at weighted averages ranging between 8.38 per cent and 8.59 per cent.


Foreign Interest

Foreign holding decreased by Rs 10.8 billion to record at Rs 143.7 billion. Foreign holding percentage dipped to 2.7 per cent from a previous level of 2.9 per cent.


Maturities for next Week

The Government Security Market has a Treasury bill maturity amounting to Rs 16.1 billion that needs to be settled week ending 24 May 2019.


Daily Summary

Thursday (09.05.19): In the secondary market, shorter end of the yield curve witnessed a steep downward shift with heavy demand, while the overall market witnessed moderate volumes. The one-year bill also recorded a notable dip to close at 9.15 per cent. During the morning hours of trading there was a slight increase in yields mainly centred on [15.03.24] maturity which traded at 10.62 per cent in the midst of profit taking. However, towards the latter part of the day, with buying interest it was seen trading at intra day’s low of 10.52 per cent. Furthermore, following maturities traded at their intra-day lows as [01.07.19] traded at 8.60 per cent, [15.12.20] at 9.60 per cent, [15.03.22] at 10.00 per cent, [15.07.23] at 10.40 per cent and [01.09.23] at 10.42 per cent. In the long end of the curve, [01.05.29] changed hands at 10.95 per cent.

 
Friday (10.05.19): Continuing positive sentiment drives secondary market yield curve downwards across the board reinforced with net surplus liquidity in the system including term repo, recording a high of Rs 89.24 billion. Buying interest was witnessed on the following maturities trading at intraday lows with the one-year trading at 9.15 per cent with considerable volumes, while [01.05.20] traded at 9.13 per cent. Foreign buying was seen on the 2021 maturities with [01.08.21] trading at intraday lows of 9.75 per cent and [15.10.21] at 9.80 per cent. Local buying interest was seen on [15.03.22], [15.03.23], [15.07.23], [15.03.24] trading at day’s low of 9.95 per cent, 10.25 per cent, 10.30 per cent, 10.40 per cent, respectively. In addition, [15.01.27] traded at 10.72 per cent with considerable volumes, as [15.06.27] traded at 10.80 per cent, while overall market witnessed high volumes.

 
Monday (13.05.19): The secondary market yield curve remained mostly unchanged with mixed activities, while the overall market witnessed high volumes for the day. In the short end of the curve, [15.12.20] traded in the range of 9.75 per cent-9.85 per cent levels, [15.03.22] at 9.90 per cent and [15.03.23] at 10.30 per cent. Mid tenor [15.03.24] witnessed high volumes trading at 10.40-10.47 per cent levels, while on the back of foreign buying, [01.08.24] traded at 10.46 per cent. Furthermore, in the midst of buying interest, the following maturities were seen trading at their intra-day lows: [01.06.26] at 10.67 per cent, [01.08.26] at 10.65 per cent, [15.06.27] at 10.75 per cent. In the long end of the curve, [01.05.29] changed hands at 10.86 per cent.

 
Tuesday (14.05.19): With the prevailing tensed situation mixed activity was witnessed in the secondary market with a slight upward shift in the yield curve amidst high volumes. Selling pressure was witnessed during the early hours of trading on the following maturities trading at their intraday high with [01.03.21], [01.05.21], [01.08.21] and [15.12.21] trading at 9.85 per cent, 9.88 per cent, 9.92 per cent and 10.00 per cent, while [01.05.21], [01.08.21] and [15.12.21] traded at 9.85 per cent, 9.88 per cent, 9.92 per cent and 10.00 per cent, and [15.03.23] and [15.07.23] traded at day’s high of 10.50 per cent and 10.48 per cent, respectively, In addition, [15.01.27], [15.06.27], [01.05.29] all traded at 10.80 per cent, while [01.05.29] traded at 10.92 per cent. During the latter session of trading, foreign buying was seen primarily centred on [15.03.24] at 10.50 per cent, while the one-year T-bill traded at day’s high of 9.25 per cent.

 
Wednesday (15.05.19): Selected mid to long tenure maturities were seen reaching intraday low amidst the buying interest, with [15.03.23] reaching 10.35 per cent, foreign buying led [15.03.24] to the day’s lowest of 10.41 per cent and [15.01.27] traded at 10.73 per cent, while the overall yield curve shifted slightly downwards, with overall market witnessing moderate volumes. At the primary bill auction, yield of three-month crawled to 8.52 per cent, six-month yield dipped to 8.88 per cent and one-year yield dipped to 9.18 per cent, recording a near eight-month low since September 2018. Post auction, on the back of buying interest, the one-year bill dipped further to close the day at 9.10 per cent, while three short term 2021 maturities ([01.03.21], [01.08.21] and [15.10.21]) traded at 9.65 per cent, 9.75 per cent and 9.85 per cent, respectively.

Sri Lanka stocks close 0.39-pct lower, selling in banks, JKH

ECONOMY NEXT | 09.05.2019

Sri Lanka’s stocks closed 0.39 percent lower on Thursday, with selling interest on John Keells Holdings (JKH) and banks.

The benchmark All Share Price Index (ASPI) closed 20.77 points lower at 5,352.20. The ASPI had reached an intra-day high of 5374.68 in the first half hour of trading, before moving towards an intra-day low of 5,349.04 just before closing.

The more liquid stocks on the S&P SL20 Index closed 0.64 percent or 16.34 points lower at 2,535.82.

Market turnover was 228.8 million rupees, with 36 stocks gaining and 70 falling.

Foreign participation was low, with net inflows of 30.8 million rupees to the market.

Hatton National Bank contributed most to the ASPI fall, closing 3.90 rupees lower at 160.10 rupees a share.

Of the 17 banking stock, 12 fell, while 4 were flat, and one gained.

JKH closed 1 rupee lower at 137 rupees a share, also pulling the ASPI down.

Market participants are continuing to sell stocks to buy at a discount later, as corporate earnings are likely to take a hit in the June quarter after the Easter bombings, said Atchuthan Srirangan, Assistant Manager Research at First Capital, an investment bank.

Piramal Glass Ceylon, Sampath Bank and Commercial Bank accounted for 62 percent of daily turnover.

Piramal Glass Ceylon gained 10 cents to close at 3.30 rupees a share.

Sampath Bank closed 1.20 rupees lower at 149.30 rupees a share, followed by Commercial Bank, which closed 80 cents lower at 90 rupees a share.

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’s Dimantha Mathew on the impact of the Easter Sunday Attack to the Share market – 24.04.2019

Investment in Sri Lanka

Dimantha Mathew, Head of Research, at First Capital on the impact of the Easter Sunday attack on the Share market

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.

Sri Lankan stocks reaching bottom of cycle

ECONOMY NEXT | 17.04.2019

Stock Brokers in Sri Lanka

Sri Lanka’s stock market is heading towards the bottom of a cycle, with opportunities for buying and potential recovery in the coming quarters, a research house said.

“With the recent stock market plunge, we believe that we inaccurately assessed the market to be at the depression stage during the December 2018 period,” the research arm of First Capital, an investment bank, said.

“Considering the reactions of the market participants it was evident that the ASPI was at the latter part of the “Anger” stage in the psychological cycle.”

“The positive developments experienced in the recent past, the upcoming election season, liquidity improvement and the possible rate cut are considered to be a number of possible trigger points for an upside in the market,” it said.

The investment bank said that the power struggle in parliament has died down following the passing of the budget in March and April, while the upcoming election season may boost economic activity and renew consumer demand.

“Thereby, we believe the ASPI (All Share Price Index) is likely to be entering the depression stage in the current market cycle with a considerable number of positive expectations over the next few quarters.”

First Capital said it has increased its portfolio to 80 percent equity holdings in April, from 60 percent in December, as the ASPI is expected to return to 6,000 levels in the next quarters.

In the 3 months from December 26 to April 02, the ASPI had dipped 7 percent with panic selling on the back of weak earnings, it said.

The ASPI closed around 5,591.83 on Wednesday.

First Capital Research said with a stabilizing rupee and a reform program with the International Monetary Fund back on track, foreign inflows to equity markets are expected to accelerate, amidst strong valuations.

Index-heavy stocks are attractive, it said.

“As we gradually turn bullish on stocks, we recommend investors to accelerate accumulation into blue chip counters which are trading at heavy discounts.”

“For investors who are already into equities, we believe this is an opportune period to increase exposure and average the existing portfolios.”

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 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.

1-Yr T-bill records at single-digit 9.99 per cent

CEYLON TODAY | 12.04.2019

Treasury Bills and Bonds in Sri Lanka

Accelerate equity accumulation to 80 per cent exposure

CEYLON TODAY | 11.04.2019

Investment in Sri Lanka

In our last update on 26 December 2018, equity exposure was increased to 60 per cent (from 50 per cent) despite the risk associated in the economy and the weak outlook in the 1Q2019. During the three months (26 December – 2 April) the ASPI dipped by seven per cent, with panic selling among all fronts on the back of weak earnings.

However, the market has recovered over 130 points in the last six days, signaling a bottoming-out effect. We recommend increasing equity exposure upto 80 per cent reducing cash allocation from 40 per cent to 20 per cent, on the backdrop of the positive developments on the liquidity, external sector, possible rate cut and potential foreign inflows.

As we gradually turn BULLISH on stocks, we recommend investors to accelerate accumulation into blue chip counters, which are trading at heavy discounts. For investors who are already into equities, we believe this is an opportune period to increase exposure and average the existing portfolios. On a broader note, we expect market returns to be positive over the next few quarters, with the ASPI edging back towards the 6,000 mark with some resistance towards 5,800.

Government and Central Bank push banks to cut rates and lend more to SMEs

DAILY MIRROR | 05.04.2019

The government and Central Bank in lockstep are pushing the banks to cut rates and deploy more funds as loans to the micro, small and medium enterprise (MSME) sector as the authorities attempt to reinvigorate the economy, which has lost its momentum. In a hurriedly called meeting with the bank chieftains held yesterday, at the Temple Trees, Economic Reforms and Public Distribution Minister Harsha de Silva was said to have urged the banks to accelerate lending to the economy, specially to the MSMEs, Mirror Business learns.

The closed door meeting was attended by Central Bank Governor Dr. Indrajit Coomaraswamy, Finance State Minister Eran Wickramaratne, several other lawmakers and some key bureaucrats.

The banking sector officials attending the meeting, including chief executive officers, chief financial officers and other key representatives, said to have pointed out that the current political logjam and the already poor economic outlook prevented them from taking any new risks. Sri Lankan banks recorded extremely high loan impairments and a significant increase in non-performing loans (NPLs) in 2018.

Sri Lanka’s economy lost momentum since 2016 due to a combination of bad fiscal and monetary policies. The growth slowed to 3.2 percent last year, well below the economy’s potential, following the tight policies implemented since mid-2016.

The data for January showed a de-growth in private sector credit to the tune of Rs.4.2 billion and the Monetary Board in February slashed the Statutory Reserve Ratio by 100 basis points to release liquidity to the market.

The weak data would have certainly troubled the policymakers who have been taking every measure to accelerate growth, as the country is facing some crucial elections in a few months’ time, where the stakes for the ruling party remain high.

Analysts and economists blame the weak ‘animal spirits’ in the economy for the current impasse as consumers and businesses lack confidence in the system.
The consistently weak data could force the Monetary Board to relax the monetary policy next week at its second meeting for the year, to prop up the sluggish economy.

First Capital Research in a report this week said a probability of a rate cut has gone up by 40 percent after the weak fourth quarter GDP growth, which came in at a shockingly low of 1.8 percent.

They see a 50 percent chance for a cut in the Standing Lending Facility Rate by at least 25 basis points.

The fiscal policy has offered little to support the economy so far.

But the recent budget proposed multiple money deploying programmes ranging from providing funds to the newly married for housing and concessionary funding for entrepreneurs and MSMEs.

Meanwhile, the government’s flagship Enterprise Sri Lanka concessionary loan programme has already disbursed about Rs.79 billion across various sectors in little under one year since its launch, to help assist those who want state support to start a business.

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.

Yields continue to plunge due to positive sentiment

CEYLON TODAY | 05.04.2019

Investment bank in Sri Lanka

By First Capital Research

Weekly Yield movement and Volume

On the back of continuous foreign interest in Government Securities, coupled with positive liquidity, the secondary market witnessed a downtrend across the yield curve amidst renewed buying interest from market participants. Positive sentiment was further fuelled on the back of the Treasury bill auction outcome. At the primary bill auction, the one-year T-bill was accepted at a weighted average of 10.15 per cent (i.e.  pre-26 October levels),  while post-bill auction,  the  one year further  dipped  to  9.95-10.05 per cent levels. In the forex market, the LKR was seen continuously appreciating, with the USD/LKR rate closing at Rs 174.6 against previous week closing levels of Rs 176.2, up by 0.9 per cent WoW. Furthermore, market liquidity turned positive to record at Rs 16.6 billion after nearly six months.

Liquidity and CBSL Holdings

CBSL   market   liquidity   turned   positive   on 3 March 2019 after a lapse of nearly six months. Prior to liquidity turning positive, the liquidity deficit was widening from 26 March 2019 to 2 April 2019. Meanwhile, CBSL holdings remained broadly steady at Rs 177.6 billion.

Foreign Interest

Foreign holding increased by Rs 1.6 billion to record at Rs 167.9 billion. However, foreign holding percentage remained stable at 3.1 per cent.

Maturities for next Week

The Government Securities Market has a Treasury bill maturity, amounting to Rs 25  billion that needs to be settled on the week ending 12 April 2019.

Sri Lanka has a 50-pct chance of rate cut

ECONOMY NEXT | 05.04.2019

There is a 50 percent chance of cut in Sri Lanka’s 9.0 percent ceiling policy rate and a narrowing of a policy corridor on April 08, a financial research house has said.

“First Capital Research allocates a 50 percent probability for a policy rate cut in April 2019, as we are of the view that policy intervention is appropriate to address the overly sluggish economic growth,” the firm said in a research note.

“Keeping in line with the possible introduction of a single policy rate, we believe a rate cut, if at all, will be applicable only to Standard Lending Facility Rate.

“However, considering the negative liquidity position we allocate a further 50 percent probability for no change in rates as CBSL may consider to delay the rate cut upto the next policy meeting in May 2019.”

Sri Lanka’s central bank has already started injecting 7-day cash at around 8.50 percent by end March down from close to 9.0 percent earlier in the month.

In 2018, the central bank cut policy rates and over-issued printed money of up to 38 billion rupees in April 2018 to trigger currency pressure and monetary instability, killing a fragile recovery that started in the first quarter of 2018, analysts have said.

In January 2019 however private credit went negative from dual shocks of a currency collapse and capital flight in the previous year.

Sri Lanka has a soft-pegged exchange rate where any money printing when credit is strong generates a run on the currency, which rapidly worsens as the central bank intervenes in forex markets and prints more money to keep interest rates down.

In recent weeks amid slower credit the central bank had brought dollars and the liquidity had been swallowed up in a liquidity shortage, helping clear it. But in April real money demand expands amid the traditional New Year holiday.

In the absence of rate cut to disrupt the credit system and reckless injections, part of the festival drawdown is covered by dollars purchases from remittances and exporter firm conversions to pay festival advances.

Even so analysts have expressed caution about cutting rates in April where there is a seasonal drawdown in cash, and had said it is more prudent to cut rates in May after returning excess cash is withdrawn.

Analysts have also warned against narrowing the policy corridor, because the central bank employs several convertibility undertaking to operate the soft-peg and a wide policy corridor provides automatic protection against liquidity shocks.

Narrowing the policy corridor will allow the central bank to generate 2018 style monetary instability more easily.

Meanwhile FC Research said CBSL acted contrary to the firm’s expectations of unchanged policy stance in February, and cut the statutory reserve ratio by 100 basis points to inject liquidity into the money market.

The firm said that the SRR cut in February helped improve liquidity in money markets, and more recently, foreign inflows to the bond market, and foreign remittances ahead of the festive season are reducing the liquidity shortage.

“We expect the situation to further improve over the next few weeks.”

FC Research aid political uncertainty has reduced to some degree with the passing of the budget.

The dovish US Fed stance has seen global fund flows shift from US gilts towards emerging markets, favouring Sri Lanka, the firm said.

In addition to a forex reserve target by the International Monetary Fund, which requires an implicit strong side convertibility undertaking of the peg with the US dollar the central bank also has a real effective exchange index target.

To enforce convertibility undertakings on both sides of the peg, a wide corridor or floating policy rate is required, or the central bank has to keep the peg on the strong side by mopping up liquidity, analysts have said.

FC Research said according to Sri Lanka’s REER (real effective exchange rate, which is a weighted average of the currency against a basket of other currencies) the rupee is now undervalued. The REER value depends on the currencies in the basket and how imprudent or prudent other central banks in the basket are.

“We expect the REER to have reached 97-98 range with the rupee appreciation together with the strengthening of the dollar index in February and March 2019.

“REER for January 2019 recorded at 94.18 indicating the undervaluation of the currency.”

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.

Bond Prices Lifted by Lower Borrowing Costs: Inside Sri Lanka

Treasury Bills and Bonds in Sri Lanka

(Bloomberg) — Sri Lanka’s bond prices rose after the government’s cost of borrowing declined at an auction Wednesday.

* Central bank sold 4b rupees ($23m) of 91-day bills at 9.24%, down from 9.39%, 4b rupees of 182-day bills at 9.50%, down from 9.67% at previous auction, and 20b rupees of 364-day notes at 10.15% versus 10.40%

** The bank offered a total 28b rupees of bills, with 106b rupees of bids received

* “Positive liquidity and expectations of a rate cut are driving  yields down,” says Dimantha Mathew, head of research at First Capital in Colombo.

* NOTE: Central Bank of Sri Lanka to announce monetary policy decision on April 8 at 4:30 pm Colombo time

* Yield on 10.9% govt bonds due March 2024 down 9bps at 10.80%

* USD/LKR marginally changed at 174.77 after it snapped three days of declines on Wednesday

* Overseas investors bought a net $1.2m of local stocks on Wednesday, taking net inflows for the month to $3.3m: exchange data