ASPI hits 17 month high following tax cuts | Daily News


ASPI hits 17 month high following tax cuts


The Bourse ended the week on a positive note as the ASPI increased by 92.70 points (or +1.51%) to close at 6,211.97 points, while the S&P SL20 Index also increased by 50.15 points (or +1.66%) to close at 3,072.15 points.

Turnover & market capitalization

Dialog was the highest contributor to the week’s turnover value, contributing LKR 0.63Bn or 9.02% of total turnover value. C T Holding followed suit, accounting for 7.49% of turnover (value of LKR 0.52Bn) while JKH contributed LKR 0.48Bn to account for 6.89% of the week’s turnover. Total turnover value amounted to LKR 6.97Bn (cf. last week’s value of LKR 8.10Bn), while the daily average turnover value amounted to LKR 1.39Bn (+48.30% W-o-W) compared to last week’s average of LKR 2.70Bn. Market capitalization meanwhile, increased by 1.51% W-o-W (or LKR 43.12Bn) to LKR 2,889.79Bn cf. LKR 2,846.67Bn last week.

Liquidity (in value terms)

The Manufacturing sector was the highest contributor to the week’s total turnover value, accounting for 25.44% (or LKR 1.77Bn) of market turnover. Sector turnover was driven primarily by Lanka Tiles, ACL and Royal Ceramics which accounted for 49.93% of the sector’s total turnover.

The Diversified sector meanwhile accounted for 25.09% (or LKR 1.75Bn) of the total turnover value, with turnover driven primarily by C T Holdings, JKH and Aitken Spence which accounted for 71.58% of the sector turnover. The Banks, Finance & Insurance sector was also amongst the top sectorial contributors, contributing 21.09% (or LKR 1.47Bn) to the total turnover, with turnover driven primarily by Commercial Bank & Sampath Bank accounting for 56.64% of the total turnover.

Liquidity (in Volume Terms)

The Manufacturing sector dominated the market in terms of share volume, accounting for 23.81% (or 71.31Mn shares) of total volume, with a value contribution of LKR 1.77Bn. The Telecom sector followed suit, adding 16.17% to total turnover volume as 48.42Mn shares were exchanged. The sector’s volume accounted for LKR 0.63Bn of total market turnover value. The Diversified sector meanwhile, contributed 41.33Mn shares (or 13.80%), amounting to LKR 1.75Bn.

Top gainers & losers

Merc. Shipping was the week’s highest price gainer; increasing 39.8% W-o-W from LKR43.70 to LKR61.10 while CIT (+22.4% W-o-W), Lanka Ceramics (+19.5% W-o-W) and Hunters (+16.2% W-o-W) were also amongst the top gainers.

Blue Diamonds [NV] was the week’s highest price loser; declining 25.0% W-o-W to close at LKR0.30 Ceylon Printers (-24.6% W-o-W), Blue Diamond (-22.2% W-o-W) and Paragon (-19.1% W-o-W) were also amongst the top losers over the week.

Foreign investors closed the week in a net selling position with total net outflow amounting to LKR 1.50Bn relative to last week’s total net outflow of LKR 1.61Bn (+7.39% W-o-W). Total foreign purchases increased by 60.12% W-o-W to LKR 1.11Bn from last week’s value of LKR 0.69Bn, while total foreign sales amounted to LKR 2.60Bn relative to LKR 2.31Bn recorded last week (+12.83% W-o-W). In terms of volume, Dialog Axiata & Renuka Agri led foreign purchases while Lanka Tiles & Commercial Bank led foreign sales. In terms of value, Dialog Axiata and Richard Pieris led foreign purchases while Commercial Bank & Lanka Tiles led foreign sales.

Key economic indicators

Prime Lending Rate-10.42 percent, Ave. Wtd. Deposit Rates-8.37 percent, Ave. Wtd. Fixed Dep. Rates-10.27 percent, CCPI Inflation Y-o-Y % (Base 2013)-5.4 percent,

Point of View

Domestic equities jumped a further ~93 Index points this week (cf. last week’s 96 Index point gain) as a host of tax cuts proposed by the new interim Cabinet markets revived market sentiment strongly and pushed the ASPI to a 17-month high. Markets started the week on a negative note, down ~36 points as last week’s profit taking continued on Monday led by selling pressure in DIST, SLTL, CARS and SLTL. Sentiments however, were quick to change as markets gained for 4 consecutive days thereafter resulting in a gain of ~128 points as the newly announced tax changes rejuvenated markets further. Consequently, the ASPI gained ~93 points or 1.5% W-o-W to close at 6,211.97 with the tax breaks introduced on Wednesday contributing to 82 points to the total gain this week. This week’s rally also added to the ~221 point (3.7% M-o-M) gain over the month of November. Activity levels in the Colombo Bourse also remained high as average daily turnover for the week amounted to Rs. 1.4Bn (cf. YTD average daily turnover of Rs. 0.7Bn). Meanwhile, local HNI and institutional participation also improved this week as crossings for the week contributed 21% to total turnover (cf. last week’s 11%). Interest remained concentrated mainly on DIAL and CTHR which accounted for 49% of the week’s crossings while select banks, conglomerates, and F&B sector stocks also received renewed investor interest. In contrast to overall local investor sentiments, foreign investors continued to exit domestic equities for a 5th consecutive week to record net foreign outflow of Rs. 1.4Bn vs. Rs. 1.6Bn last week thus pushing the YTD net outflow from the Colombo bourse to Rs. 10.8Bn (cf. Rs. 9.3Bn last week) as foreign outflows for the month of November totalled to Rs. 6.4Bn, the highest monthly net outflow recorded this far this year. Markets in the week ahead are likely to take cues over policy direction while also seeking greater clarity over the recent tax revisions.

GoSL Announces Tax Cuts

Following the appointment of a new interim Cabinet, the GoSL has decided to revise/eliminate certain taxes in an attempt to boost economic activity ahead of the General Elections. Accordingly, the Cabinet announced the reduction of VAT to 8% (from 15%) with effect from 1st of Dec’19 while the tax-free turnover threshold for VAT has also been raised to Rs. 25Mn from Rs. 1Mn per month although VAT on banking, financial services and insurance will be maintained at 15%. Meanwhile, the 2% NBT on domestic goods & services, Capital Gains tax, Debit tax, VAT on condominiums and the Economic Service Charge are among some of the taxes that are to be abolished with immediate effect.

The proposals outlined are likely to benefit several key industries including Banks, Telco, Construction, and Tourism. The combined impact of the removal of the Debt Repayment Levy (7%) and NBT charged on banks and financial institutions is expected to have a positive impact on the Banking sector profitability going forward. Meanwhile, corporate taxes for Construction companies including AEL were halved from 28% to 14% while the Telco sector is set to benefit from a 25% cut in the telecommunication levy along with reduction in VAT and removal of NBT. IT & enabling services and farm income from agriculture, fishing, and livestock are to be made free from all taxes.

In terms of PAYE tax, the Government has decided to increase the tax free threshold to Rs. 250,000 from the current Rs. 125,000 while the upper threshold of personal income tax has been revised down to 18% from 24% previously. Moody’s however said that “sweeping tax cuts” are likely to negatively impact government revenue and put pressure on SL’s budget deficit, estimating the impact from the tax cuts to fiscal revenue to be around 1-1.5% of GDP.

Source: Economy Next, LBO, Daily Mirror

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