ECONOMYNEXT – Sri Lanka’s main stock index gained 1.16 percent to a fresh record high on Tuesday (31) in strong turnover, recovering from the previous session’s loss, brokers said.
Some analysts said a statement by State Minister Ajith Nivard Cabraal, who in his twitter platform said an 800 million US dollars from the International Monetary Fund (IMF) and another 350 million US dollars from China Development Bank will improve the UD dollar liquidity in the market.
“The market took it positive amid speculations that Sri Lanka will be seeking IMF support for debt restructuring,” a stockbroker said asking not to be named.
However, some analysts expect a possible dip in the equity market due to the central bank’s 2 percent hike of Statutory Reserve Ratio (SRR) of commercial banks with effect from Wednesday (Sept. 1).
The index continued to increase throughout the day and reached an all-time high of close at 8,997.71 with 103.16 points gain for the day.
The S&P SL20 index of more liquid stocks gained 1.97 percent or 65.36 points to close at 3,375.73.
Sri Lanka Co- cabinet spokesman Ramesh Pathirana on Tuesday told reporters that the government will take a decision on whether to seek the International Monetary Fund based on future conditions.
“There is no decision yet,” he told the weekly cabinet news briefing.
“In the future looking at the world situation and the country’s situation we will take the required decision. At the moment there is no deficit decision.”
Earlier in August the central bank raised its overnight rates and also the raised some ceilings on Treasury bill and bond auctions through which money was also printed.
The IMF usually tells countries to raise interest rates to stop money printing, then asks for a float of exchange rate, to make the monetary base inconvertible. The agency also asks for an expenditure cut and a tax hike to reduce the deficit so that the required interest rate to half money printing is reduced.
Analysts expect a market correction soon when the central bank’s tightening measures start to bite. The central bank raised its key policy rates by 50 basis points last week. It also has raised commercial banks’ Statutory Reserve Ratio (SRR) by 2 percent with effect from September 1,2021.
Meanwhile, central bank has published an indicative spot rate of 210 to the US dollar on August 31, while adjusting a rate for telegraphic transfers on its website to widen the margin while banks published rates of 220/226 rupees.
Sri Lanka does not have a functioning interbank spot market at the moment and banks are negotiating with importers and exporters over the counter leading to large margins in many cases, market participants say.
The day’s turnover was 10.8 billion rupees, well over this year’s average daily turnover of 3.9 billion rupees.
Sri Lanka’s pandemic situation has been worsening with COVID-19 daily death toll has been recording a fresh record high in most of the days in the last week.
The gain was led by Expolanka Holdings, Commercial Leasing and Finance and Browns Investments.
Expolanka Holdings which has a significant export component in its business gained 17.54 percent to close at 167.50 rupees.
Commercial Leasing and Finance gained 3.65 percent to close at 22.70 rupees a share and Browns Investments gained 1.94 percent to close at 10.50 rupees.
Foreign investors, purchased a net 3.5 million worth of shares on Tuesday, and the market has suffered a net foreign outflow of over 37.2 billion rupees so far this year.
The bourse saw 99 stocks gaining against 83 falling on Tuesday. (Colombo/August 31/2021)