The Bourse ended the week on a negative note as the ASPI decreased by 81.79 points (or -1.42 percent) to close at 5,689.90 points, while the S&P SL20 Index also decreased by 8.59 points (or -0.31 percent) to close at 2,755.42 points.
Turnover & market capitalization
JKH was the highest contributor to the week’s turnover value, contributing LKR 0.77Bn or 27.97 percent of total turnover value. Ceylon Tobacco followed suit, accounting for 17.29 percent of turnover (value of LKR 0.47Bn) while Ceylinco Insurance contributed LKR 0.32Bn to account for 11.50 percent of the week’s turnover. Total turnover value amounted to LKR 2.74Bn (cf. last week’s value of LKR 1.66Bn), while the daily average turnover value amounted to LKR 0.55Bn (-65.27 percent W-o-W) compared to last week’s average of LKR 0.33Bn. Market capitalization meanwhile, decreased by 3.16 percent W-o-W (or LKR 86.07Bn) to LKR 2,638.95Bn cf. LKR 2,725.01Bn last week.
Liquidity (in Value Terms)
The Diversified sector was the highest contributor to the week’s total turnover value, accounting for 40.47 percent (or LKR 1.11Bn) of market turnover. Sector turnover was driven primarily by JKH, Browns Investments, Aitken Spence & Hemas Holdings which accounted for 94.80 percent of the sector’s total turnover. The Bank, Finance & Insurance sector meanwhile accounted for 24.70 percent (or LKR 0.68Bn) of the total turnover value, with turnover driven primarily by Ceylinco Insurance, Sampath Bank & Janashakthi Insurance which accounted for 80.36 percent of the sector turnover. The Beverage, Food & Tobacco sector was also amongst the top sectorial contributors, contributing 18.30 percent (or LKR 0.50Bn) to the total turnover, with turnover driven primarily by Ceylon Tobacco accounting for 94.49 percent of the total turnover.
Liquidity (in Volume Terms)
The Diversified sector dominated the market in terms of share volume, accounting for 49.28 percent (or 34.60Mn shares) of total volume, with a value contribution of LKR 1.11Bn. The Banks, Finance & Insurance sector followed suit, adding 17.09 percent to total turnover volume as 12.00Mn shares were exchanged. The sector’s volume accounted for LKR 0.68Bn of total market turnover value. The Manufacturing sector meanwhile, contributed 3.90Mn shares (or 5.55 percent), amounting to LKR 0.08Bn.
Top gainers & losers
On’ally was the week’s highest price gainer; increasing 52.5 percent W-o-W from LKR22.30 to LKR34.00 while Blue Diamonds [NV] (+50.0 percent W-o-W), Sinhaputhra Finance (+24.7 percent W-o-W) and Sinhaputhra Finance[P](+18.6 percent W-o-W) were also amongst the top gainers. Tess Agro was the week’s highest price loser; declining 20.0 percent W-o-W to close at LKR0.40 while Tess Agro [NV] (-20.0 percent W-o-W), Lee Hedges (-18.6 percent W-o-W) and Paragon (-14.4 percent 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 0.30Bn relative to last week’s total net outflow of LKR 0.39Bn (+23.3 percent W-o-W). Total foreign purchases increased by 459.8 percent W-o-W to LKR 0.96Bn from last week’s value of LKR 0.17Bn, while total foreign sales amounted to LKR 1.26Bn relative to LKR 0.56Bn recorded last week (+123.93 percent W-o-W). In terms of volume, Aitken Spence & Browns Investments led foreign purchases while Hemas Holdings & JKH led foreign sales. In terms of value, Aitken Spence and LOLC Holdings led foreign purchases while Ceylon Tobacco & JKH led foreign sales.
Dividend Announcements
Company DPS (Rs.) Type XD Date: PEOPLE’S INSURANCE 0.75 First Interim 18-10-2019 HAYLEY’S FIBRE 2.00 First Interim 09-10-2019 HAYCARB PLC 3.00 First Interim 09-10-2019 BUKIT DAHRAH 0.50 First Interim 14-10-2019
August Economic Snapshot: Prime Lending Rate: 10.69 percent, Ave. Wtd. Deposit Rates: 8.73 percent, Ave. Wtd. Fixed Dep. Rates: 10.74 percent, CCPI Inflation Y-o-Y percent (Base 2013): 3.4 percent
Point of view
Equity markets took a turn for the worse this week as the benchmark index slipped 81.8 or 1.4 percent W-o-W as greater foreign selling pressure in heavyweight CTC (down 8.6 percent W-o-W) dragged on the index during the week while new developments in the country’s political landscape also dampened investor sentiment. The broad share Index consequently fell for 4 straight sessions this week, shedding ~92 points by the end of trading on Thursday to hit its lowest point in over 10 weeks. Despite some buying interest on Friday, gains on the index (~12 points) failed to offset early losses and the ASPI consequently closed the week at 5,689.90 points, pushing the YTD loss on the ASPI to 6.0 percent. Activity levels meanwhile improved this week on the back of higher local HNI and institutional participation and the average daily turnover for the week consequently increased to Rs. 0.55Bn ( +65.3 percent W-o-W) from last week’s Rs. 0.33Bn.
Crossings for the week meanwhile accounted for nearly 47 percent of total turnover the week (cf. 25 percent last week) and crossings were dominated by JKH (42 percent of total crossings) while CTC, Ceylico Insurance, Sampath Bank, Janashakthi Insurance and Aitken Spence Plantation Management accounted for the rest. Meanwhile, foreign investors were net sellers this week despite some buying interest at the beginning of the week as the foreign sell-off in CTC contributed to the total net outflow of Rs. 301.1Mn from equity markets this week (cf. Rs. 392.6Mn last week). The YTD net foreign outflow from the Colombo Bourse consequently increased to Rs. 2.8Bn from Rs.2.5Bn last week. Domestic equity markets started Q3’19 on a strong note, gaining 9.6 percent between Jul – Aug, and helping trim losses earlier in the year. However, heavy losses on the Index in September curbed gains for the quarter, and the ASPI consequently closed -2.6 percent over September to bring the Q3’19 performance on the Index to 6.8 percent. Markets in the week ahead are likely to take cues from developments on the political stage.
CBSL Disputes Moody’s view on rate cap
The CBSL’s recent mandate to cut lending rates on all LKR denominated loans by at least 200bps has raised fresh concerns regarding Sri Lanka’s banking sector with Moody’s stating that the recent rate cut will compress net interest margins (NIMs) and exacerbate existing profitability challenges. The agency expects NIMs to narrow further due to the time lag created from the immediate decline in lending rates against the gradual reduction in the Bank funding costs. Moody’s added that the shrinking margins would further strain the already weak profitability of Banks due to rising credits costs and a higher effective tax rate over the last few quarters.
When commenting on the impact of the rate cut on the three rated banks (Bank of Ceylon, Hatton National Bank and Sampath Bank), the rating agency added that a negative effect on margins and profitability will be more pronounced for Bank of Ceylon compared to that of the private commercial banks HNB and Sampath Bank due to BOC’s lower asset yield. Deterioration in asset quality across Sri Lanka’s banking industry has led to a substantial increase in credit costs while the double blow of a constitutional crisis and terrorist attacks have worsened operating conditions this year. In addition, the government introduced a debt repayment levy that raised the effective tax rate to more than 50 percent from 2019-21, further weighing on the banks’ bottom line.
The CBSL refuted Moody’s analysis, stating that although there has been a substantial reduction in cost of funds through the recent measures taken by the CBSL to lower interest rates, Bank lending interest rates continued to remain high (cf. to money market rates and G-sec rates) despite the CBSL granting Banks sufficient time to adjust lending rates downwards. Furthermore, the CBSL doesn’t expect a material change in NIMs and believes the imposition of a cap on lending rates would, in fact, be positive as it would lead to a gradual increase in credit demand and stimulate economic activity. Source: LBO
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