ASPI edges up amid policy rate cut | Daily News

ASPI edges up amid policy rate cut

CBSL cuts policy rates by 50 bps

The Bourse ended the week on a positive note as the ASPI increased by 15.84 points (or +0.30%) to close at 5,310.95 points, while the S&P SL20 Index also increased by 5.65 points (or +0.23%) to close at 2,469.82 points.

Turnover & Market Capitalization

Hatton Plantations was the highest contributor to the week’s turnover value, contributing LKR 1.05Bn or 37.28% of total turnover value. JKH Holdings followed suit, accounting for 27.42% of turnover (value of LKR 0.78Bn) while Janashakthi Insurance contributed LKR 0.29Bn to account for 10.16% of the week’s turnover. Total turnover value amounted to LKR 2.83Bn (cf. last week’s value of LKR 0.83Bn), while daily average turnover value amounted to LKR 0.57Bn (+174.25% W-o-W) compared to last week’s average of LKR 0.21Bn. Market capitalization meanwhile, increased by 0.34% W-o-W (or LKR +8.59Bn) to LKR 2,502.27Bn cf. LKR 2,493.67Bn last week.

Liquidity (in Value Terms)

The Plantations sector was the highest contributor to the week’s total turnover value, accounting for 37.48% (or LKR 1.06Bn) of market turnover. Sector turnover was driven primarily by Hatton Plantations which accounted for 99.45% of the sector’s total turnover. The Diversified sector meanwhile accounted for 30.19% (or LKR 0.85Bn) of the total turnover value, with turnover driven primarily by JKH which accounted for 90.81% of the sector turnover. The Banks, Finance & Insurance sector was also amongst the top sectorial contributors, contributing 22.65%(or LKR 0.64) to the total turnover, with turnover driven primarily by Janashakthi Insurance, Seylan Bank[NV], Central Finance, Sampath Bank, Commercial Credit & Commercial Bank accounting for 85.04% of the total turnover.

Liquidity (in Volume Terms)

The Plantations sector dominated the market in terms of share volume, accounting for 67.74% (or 128.03Mn shares) of total volume, with a value contribution of LKR 1.06Bn. The Banks, Finance & Insurance sector followed suit, adding 11.81% to total turnover volume as 22.32Mn shares were exchanged. The sector’s volume accounted for LKR 0.64Bn of total market turnover value. The Diversified sector meanwhile, contributed 11.96Mn shares (or 6.33%), amounting to LKR 0.85Bn.

Top Gainers and losers

Hatton Plantations was the week’s highest price gainer; increasing 33.9% W-o-W from LKR5.90 to LKR7.90 while Dunamis Capital(+33.2% W-o-W), Morisons(+21.0% W-o-W) and Fort Land(+20.7% W-o-W) were also amongst the top gainers. Lucky Lanka were the week’s highest price loser; declining 35.3% W-o-W to close at LKR1.10 while Lucky Lanka[NV](-30.0% W-o-W), Industrial Asphalts (-23.8% W-o-W) and Kelsey Developments(-15.3% W-o-W) were also among the top losers over the week.

Foreign investors closed the week in a net buying position with total net inflow amounting to LKR 0.31Bn relative to last week’s total net outflow of LKR 0.15Bn (+305.8% W-o-W). Total foreign purchases increased by 515.1% W-o-W to LKR 0.59Bn from last week’s value of LKR 0.10Bn, while total foreign sales amounted to LKR 0.28Bn relative to LKR 0.25Bn recorded last week (+11.9% W-o-W). In terms of volume, JKH & Commercial Bank led foreign purchases while Access Engineering and LOLC Finance led foreign sales. In terms of value, JKH and Commercial Bank led foreign purchases, while Hemas Holdings and Access Engineering led foreign sales.

Point of view

The recovery in Sri Lankan equities continued this week as the broad-share market index gained for a 2nd consecutive week amid expectations that the Central Bank would cut policy rates in view of rising macro-economic pressures following the Easter Sunday attacks. Consequently, the ASPI gained ~29 points by the end of trading on Thursday, ahead of the Monetary Policy Review on Friday. Selling pressure on Friday however, trimmed some of the market’s early gains, and the benchmark index lost ~14 points on Friday amid selling on Index heavyweights such as JKH and Commercial Bank. The gain on the benchmark index for the full week consequently reduced to ~15.8 points or 0.3% W-o-W to close at 5,310.95 points. The weekly uptick was supported by gains in Commercial Bank, Chevron, Browns Investments and Ceylon Tobacco which collectively contributed 9.35 points to the total weekly gain. Activity levels on the Colombo Bourse also picked up considerably over the week, with turnover for the week reaching Rs. 2.8Bn (up 243% W-o-W) from last week’s total turnover of Rs. 0.8Bn.

Consequently, daily average turnover for the week improved to Rs. 0.57Bn, in line with the YTD average of Rs. 0.55Bn. The sharp increase in turnover levels this week was largely attributable to a strategic transaction in Hatton Plantations whereby Lotus Renewables acquired a 51% controlling stake in the former for a total consideration of Rs. 1.0Bn. Crossings for the week consequently accounted for ~69% of this week’s total turnover c.f. YTD average contribution of 34%. HNI and institutional buying interest was also visible in JKH (26% of crossings), Janashakthi Insurance (13% of crossings), Seylan Bank and Three Acre Farms. Global market sentiment meanwhile was largely pessimistic this week as fears of a renewed trade war between the U.S. and China and dampened global economic growth, restrained the largely positive investor sentiment which has prevailed through Q1’19. Despite the largely negative sentiment in global financial markets, the persistent foreign equity sell-off on Sri Lankan equities over the last three week’s eased this week, with strong foreign buying in JKH resulting in a net foreign inflow of Rs. 313.0Mn for the week relative to a net foreign outflow of Rs. 152.1Mn last week. The YTD net foreign outflow consequently fell to Rs. 5.6Bn from Rs. 5.9Bn last week. Markets in the week ahead are likely look for cues both from ongoing economic and political developments and from the ongoing corporate earnings releases for Q1’19.

CBSL cuts policy rates by 50 bps

The Central Bank on Friday reduced policy rates by 50Bps (SDFR to 7.50% and SLFR to 8.50%) citing pressure on already subpar economic growth post the Easter Terror attacks and the failure of market lending rates to adjust downwards despite recent monetary policy actions. The move was line with the CBSL’s forward guidance at its previous policy review in April, when the Monetary authority indicated that a policy relaxation is possible if the current trends in the global financial markets, trade balance, and credit growth continue.

The CBSL noted that dovish monetary policy has being observed globally due to increased trade tensions, weakened business confidence and a slowdown in global economic growth, and this has remained conducive to the rate relaxation in Sri Lanka. The CBSL further noted that although GDP growth in 2019 was originally anticipated to improve on the back of Agriculture and Industry-related activities, the Easter Terror attacks have worsened prospects by affecting the confidence of economic agents and that growth is thus likely to be lower than initially projected.

Meanwhile, despite the CBSL’s sizable liquidity injections, the steep decline in G-Sec yields, and the recent introduction of a ceiling on deposit rates, market lending rates have remained sticky upwards, further justifying the CBSL’s moved to reduce monetary policy rates. The CBSL also noted that the notable contraction in private sector lending (due to sluggish economic growth and high lending rates) along with improvements in the country’s trade balance have also supported its decision to adjust policy rates down.

The Monetary Authority added that the improved trade balance is likely to negate some of the negative impact of the Easter Attacks on Tourism while the resumption of the EFF with the IMF is likely to support investor sentiment.


 

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