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Sri Lanka stocks soar 3.9-pct, rupee slides in excess liquidity

ECONOMYNEXT – Sri Lanka stocks soared 3.91 per cent higher reaching up 14 per cent so far in 2021 while the rupee was defended around 193 to 194 to the US dollar, brokers and dealers said amid excess liquidity in money markets and low rates which had inverted forward premiums.

Colombo’s All share price index gained 3.91 per cent or 291.34 points to close at 7,734.57, in a record daily point gain. It was the highest daily gain since 2012, NDB Stockbrokers said in a note to clients.

The index is a tad below 7,812 reached on February 2011, but has topped 7,548 pointed reached on November 18, 2014, Capital Trust Securities said.

The S&P SL20 index of more liquid stocks gained 4.90 per cent or 136.46 points to close at 2,918.63.

LOLC Holdings contributed most to the index gain on Friday, closing 45.25 rupees up at 226.75 rupees a share.

LOLC Finance, a subsidiary of LOLC holdings gained 1.30 rupees to close at 8.10 rupees and Browns investments close 10 cents up at 7.50 rupees a share.

Expolanka Holdings gained 6.40 rupees to close at 53.40 rupees a share and Commercial Leasing and Finance gained 1.70 rupees to close at 8.70 rupees a share also contributing to the ASPI gain.

Liquid Demand

“There is pent up pent-up buying sentiment due to excess liquidity in the market and lower interest rates making stocks a more favourable asset class to investors,” a broker said.

“In this part of the world, fixed deposits have remained one of the prominent asset classes for investors however with the government reducing the rates potential investors have been looking elsewhere to invest.”

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Sri Lanka money markets have had record excess liquidity of around 20 per cent of the monetary base or around 220 billion rupees amid a record bout of money printing, which has led to credit downgrades and a steady drain on foreign reserves through the financial account.

In the domestic markets, dollar yields have overtaken rupee yields making forward premiums negative, while the economy is tied up in import controls.

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Sri Lanka central bank forex interventions turn negative in November

Import controls and an import substitution strategy after money printing is driving up earnings of some domestic producers who are not efficient enough to export, while the falling rupee is helping export firms though real wage cuts, moderating price to earnings multiples.

Dipped products gained 19.75 rupees to close at 401.25 rupees a share and Haycarb gained 72.75 rupees to close at 757.75 rupees.

Lanka Ceramic closed 8.25 rupees up at 164.00 rupees a share and Royal Ceramic Lanka gained 5.25 rupees to close at 202.75 rupees a share.

Meanwhile, entrepreneurs running import-dependent businesses, who have been locked out of real economic activity, are also punting stocks, market participants said.

Stocks are up 14.1 per cent so far in 2021.

The rupee was defended around 193.50 to 194.00 levels in the spot market Friday, market participants said from around 185.50 to the US dollar at year-end.

Net foreign selling was 178,121,606 million rupees on Friday.

Foreigners have sold about 2.9 billion rupees of stocks so far, but also bought about 1.4 billion rupees.

Market turnover soared to 12.5 billion rupees on Friday, with 130 stocks gaining and 79 falling.

Banking Rally

The banking sector which has been lagging the rest of the sector amid fears over bad loans, also gained in the rally.

In the banking sector Hatton National Bank closed 1.50 rupees up at 128.25, Sampath Bank 3.00 rupees up at 141.20 rupees a share, Commercial Bank of Ceylon gained 2.30 rupees to close at 84.30 rupees and DFCC Bank closed 2.40 rupees up at 65.70 rupees.

In the hotel sector, Eden Hotel Lanka closed 2.50 rupees up at 13.40 rupees a share and Sigiriya Village hotel closed 50 cents up at 34.50 rupees while Aitken Spence Hotel holdings fell 1.00 rupee to close at 33.00 rupees, John Keels Hotels closed 30 cents down at 10.40 rupees a share.

Sri Lanka Telecom closed 4.10 rupees up at 42.60 rupees and Melstacorp Plc closed 5.90 rupees up at 62.70 rupees. Richard Pieris Company closed 50 cents up at 15.50 rupees.

John Keells Holdings closed 6.50 rupees up at 160.00 rupees a share.

On January 13 President Gotabaya Rajapaksa said Indian’s Adani Ports and partners will get a 49 per cent stake in the East container and the Sri Lanka government a majority of 51 per cent in a container terminal in Colombo Port.

About a third of the East Terminal had already been built, but the balance is estimated to require an investment of around 600 million dollars.

Read: Sri Lanka port terminal: India’s Adani group and partners to hold 49-pct

Ceylon Tobacco Company fell 6.00 rupees to close at 1,114.25 rupees while Ceylon Cold stores closed 4.25 rupees down at 695.50 rupees a share while Distilleries Company gained 1.40 rupees to close at 24.30 rupees.

Hayleys Plc closed 21.00 rupees up at 491.25 rupees and Softlogic Holdings closed 10 cents up at 13.50 rupees.

Tokyo Cement Company gained 4.30 rupees to close at 83.30 rupees while Piramal Glass Ceylon closed 30 cents up at 10.90 rupees a share.

Nestle Lanka closed 23.50 rupees down at 1,309.25 rupees and Dialog Axiata closed 20 cents down at 12.90 rupees.

Aitken Spence Plc closed 6.70 rupees up at 64.70 rupees while Carson Cumberbatch closed 12.00 rupees down at 305.25 rupees.

The Capital Goods industry was the most active, gained 5.4 per cent and Materials Industry which was also active gained 3.7 per cent (Colombo/January 15/2021)

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