The Bourse ended the week on a positive note as the ASPI increased by 1.69 (or +0.03%) to close at 5,438.75 points, while the S&P SL20 Index also increased by 17.19 points (or +0.66%) to close at 2,617.95 points.
JKH was the highest contributor to the week’s turnover value, contributing LKR 0.10Bn or 16.68% of total turnover value. Sampath Bank followed suit, accounting for 13.00% of turnover (value of LKR 0.08 Bn) while Commercial Bank contributed LKR 0.05 billion (Bn) to account for 8.85% of the week’s turnover.
Total turnover value amounted to LKR 0.62 Bn (cf. last week’s value of LKR 3.08Bn), while daily average turnover value amounted to LKR 0.15 Bn (-79.87% W-o-W) compared to last week’s average of LKR 0.77 Bn. Market capitalization meanwhile, increased by 0.04% W-o-W (or LKR +1.03Bn) to LKR 2,554.13 Bn cf. LKR 2,553.09 Bn last week.
The Banks, Finance & Insurance sector was the highest contributor to the week’s total turnover value, accounting for 40.10% (or LKR 0.25Bn) of market turnover. Sector turnover was driven primarily by Commercial Bank, Sampath Bank, HNB & LB Finance which accounted for 67.91% of the sector’s total turnover. The Diversified sector meanwhile accounted for 28.73% (or LKR 0.18Bn) of the total turnover value, with turnover driven primarily by JKH & Hemas Holdings which accounted for 83.14% of the sector turnover.
The Beverage, Food & Tobacco sector was also amongst the top sectorial contributors, contributing 9.53%(or LKR 0.06) of the total turnover, where sector turnover was primarily driven by Ceylon Tobacco which accounted for 71.51% of the sector turnover.
The Banks, Finance & Insurance sector dominated the market in terms of share volume, accounting for 19.54% (or 4.49Mn shares) of total volume, with a value contribution of LKR 0.25 Bn.
The Diversified sector followed suit, adding 18.16% to total turnover volume as 4.18Mn shares were exchanged. The sector’s volume accounted for LKR 0.18 Bn of total market turnover value. The Manufacturing sector meanwhile, contributed 3.88Mn shares (or 16.87%), amounting to LKR 0.05 Bn.
Top Gainers & Losers
SMB Leasing[NV] was the week’s highest price gainer; increasing 50.0% W-o-W from LKR0.20 to LKR0.30 while Samson International (+17.5% W-o-W), CW Mackie (+15.8% W-o-W) and Millenium House (+14.3% W-o-W) were also amongst the top gainers. Lanka Ceramic were the week’s highest price loser; declining 23.0% W-o-W to close at LKR100.10 while Mackwoods Energy (-18.8% W-o-W), Convenient Food (-18.7% W-o-W) and Good Hope (-18.5% W-o-W) were also amongst the top losers over the week.
Foreign investors closed the week in a net buying position with total net inflow amounting to LKR 0.06Bn relative to last week’s total net inflow of LKR 1.56Bn (-96.4% W-o-W). Total foreign purchases decreased by 92.9% W-o-W to LKR 0.18Bn from last week’s value of LKR 2.47 Bn, while total foreign sales amounted to LKR 0.12Bn relative to LKR 0.91Bn recorded last week (-86.8% W-o-W). In terms of volume, JKH & Vallibel Power led foreign purchases while Commercial Bank & Chevron led foreign sales. In terms of value, JKH & Ceylon tobacco led foreign purchases while Commercial Bank & Hemas Holdings led foreign sales.
Point of View
Volatility persisted in domestic equity markets yet again this week as uncertainty continued to prevail one week after the devastating Easter terror attacks and dampened overall investor participation. Although last week’s mild uptick continued during the first half of the holiday shortened week, the momentum could not be sustained and the benchmark index’s early gains (41 points by Tuesday) led by large-caps such as CTC and JKH were pared down by losses stemming from greater selling pressure on Thursday and Friday.
The ASPI consequently fell ~40 points during the latter half of the week, resulting in the Index gaining a paltry 1.7 points or 0.03% W-o-W to close at 5,438.75 points during the week. Activity levels too declined drastically this week as investors opted to remain largely on the side lines. The daily average turnover consequently fell 80% W-o-W to Rs. 0.15 Bn this week cf. Rs. 0.77 Bn last week, significantly below the YTD average daily turnover of Rs. 0.58 Bn. HNI and institutional participation dropped significantly this week as crossing for the week accounted for a mere 5% of total market turnover (cf. YTD average of 35%) during the week.
A single large parcel in Ceylon Tobacco accounted for the total crossings during the week amid foreign buying interest in the stock. Foreign buying meanwhile continued once again this week although at a notably slower pace than that of last week. Foreign investors recorded a net foreign inflow of ~Rs. 55.9Mn cf. a net foreign inflow of Rs. 1,561.8 Mn last week). Helped by the increased buying over the last two weeks, the YTD sell-off on domestic equities eased marginally to Rs. 4.36 Bn (cf. Rs.4.42Bn last week). Improved risk appetite for risky EM/FM assets have led to foreign investors recording a monthly net foreign inflow in April19, the first time since Jun’18. 
The US Fed meanwhile decided to leave its benchmark interest rate unchanged on Wednesday amid mixed signals regarding the direction of the US economy. Markets in the week ahead are likely look for cues from security and political developments as the crackdown on those behind the Easter terror attacks continue.
CBSL Aims to Reduce Lending Rates to SMEs
In a move aimed at reducing overnight interest rates and improve market liquidity, the CBSL reduced the Statutory Reserve Ratio by 250 bps in two steps in Nov’18 and Mar’19. The Central Bank however noted that despite its efforts, high interest rates are currently being charged on lending products and “excessively” high rates are offered on deposit products by Licensed Commercial Banks, Licensed Specialized Banks and Non-Bank Financial Institutions (NBFIs).
The Central Bank further added that compared to other regions, Sri Lanka’s real interest rates were relatively high. In Jan’19, Sri Lanka’s had the highest real interest rate in the South Asian region (among the highest in the world) at 6.2% followed by Egypt, Pakistan, India and Turkey1.
Accordingly, the Central Bank has requested licensed banks and NBFIs to reduce interest rates on deposits and lending products in order to enhance credit flows to the economy. The CBSL plans to link saving and deposits with tenures less than 3 months to Standing Deposit Facility Rate (currently at 8.0% p.a.) whilst longer tenures are to be linked to the 364 day Treasury bill rate.
The CBSL expects lending rates to reduce by ~200 bps to Small and Medium Enterprise (SMEs) in the near term as these measures are likely to reduce cost of funds for the financial institutions. Banks have in turn begun to reduce the deposit rate following the CBSL’s request. Sampath Bank cut interest rates on 12-month fixed deposits to 10.5% from 12.0% while Commercial Bank also reduced rates by 50bps to 10.5%.
Further, the state banks are yet to announce the changes to interest rates. Urban inflation levels for the month of April meanwhile showed a slight uptick, with headline CCPI rising to 4.5% Y-o-Y compared to 4.3% Y-o-Y in March’19. The increase in inflation was driven by increases within both the food and non-food categories. Despite the increase in headline CCPI over the month, core inflation (which excludes energy and other key items) over April declined to 5.5% Y-o-Y cf. 5.6% Y-o-Y recorded in March.
Courtesy: ACUITY STOCKBROKERS RESEARCH
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