Sunday, May 24, 2020

Equity Market Reverses Losses Amidst Continued Foreign Outflow

The Bourse ended the week on a positive note as the ASPI increased by 360.85 points (or 8.13 percent) to close at 4,799.89 points, while the S&P SL20 Index also increased by 278.87 points (or 15.89 percent) to close at 2,034.38 points.

HNB was the highest contributor to the week’s turnover value, contributing LKR 2.09Bn or 25.94 percent of the total turnover value. Commercial Bank followed suit, accounting for 20.61 percent of turnover (value of LKR 1.66Bn) while JKH contributed LKR 1.19Bn to account for 14.79 percent of the week’s turnover. Total turnover value amounted to LKR 8.05Bn (cf. last week’s value of LKR 9.61), while the daily average turnover value amounted to LKR 1.61Bn (-16.24 percent W-o-W) compared to last week’s average of LKR 1.92Bn. Market capitalization meanwhile, increased by 8.59 percent W-o-W (or LKR 177.54Mn) to LKR 2,244.08Bn cf. LKR 2,066.54Bn last week.

Liquidity (in Value Terms)

The Banks Industry Group was the highest contributor to the week’s total turnover value, accounting for 65.94 percent (or LKR 5.31Bn) of market turnover. Industry Group’s turnover was driven primarily by HNB, Commercial Bank, Sampath Bank, HNB [NV] & Nations Trust Bank which accounted for 95.97 percent of the sector’s total turnover. The Capital Goods Industry Group meanwhile accounted for 17.21 percent (or LKR 1.38Bn) of the total turnover value, with turnover driven primarily by JKH which accounted for 85.94 percent of the sector turnover. The Food, Beverage & Tobacco Industry Group was also amongst the top sectorial contributors, contributing 3.75 percent (or LKR 0.30Bn) to the total turnover, with turnover driven primarily by Browns Investments accounting for 45.90 percent of the total turnover.

Liquidity (in Volume Terms)

The Banks Industry Group dominated the market in terms of share volume, accounting for 22.20 percent (or 64.64Mn shares) of total volume, with a value contribution of LKR 5.31Bn. The Materials Industry Group followed suit, adding 20.53 percent to total turnover volume as 59.79Mn shares were exchanged. The Industry Group’s volume accounted for LKR 0.26Bn of total market turnover value. The Food, Beverage & Tobacco Industry Group meanwhile, contributed 54.22Mn shares (or 18.62 percent), amounting to LKR 0.30Bn.

Top Gainers & Losers

Tea Smallholder was the week’s highest price gainer; increasing 62.5 percent W-o-W from LKR20.00 to LKR32.50 while Browns Investments (+52.4 percent W-o-W), Printcare (+49.0 percent W-o-W) and Malwatte (+45.0 percent W-o-W) were also amongst the top gainers.

Industrial Asphalts was the week’s highest price loser; declining 99.9 percent W-o-W to close at LKR0.20 due to a Subdivision of shares. Blue Diamonds [NV] (-33.3 percent W-o- W), SMB Leasing [NV] (-33.3 percent W-o-W), and SMB Leasing (-25.0 percent W-o-W) were also amongst the top losers over the week.

Foreign investors closed the week in a net selling position, with the total net outflow amounting to LKR 3.40Bn relative to a net outflow of LKR 3.51Bn recorded last week. Total foreign purchases decreased to LKR 0.59Bn from a value of LKR 1.59Bn last week, while total foreign sales amounted to LKR 4.0Bn relative to LKR 5.10Bn recorded last week. In terms of volume, Richard Pieris & Access Engineering led foreign purchases while Expolanka & HNB led foreign sales. In terms of value, Lion Brewery & Richard Pieris led foreign purchases while HNB & Sampath Bank led foreign sales.

Dividend Announcements

Company DPS (Rs.) Type XD Date; COMMERCIAL DEVELOPMENT, 4.00, Final, 19/06/2020, AITKEN SPENCE, 1.25, First and Final, 01/07/2020

Key Economic Indicators for April Prime Lending Rate- 9.38 percent, Ave. Wtd. Deposit Rates- 7.77 percent, Ave. Wtd. Fixed Dep. Rates 9.51 percent, CCPI Inflation Y-o-Y % (Base 2013)- 5.2 percent.

Point of View

Sri Lankan equities reversed last week’s losses as the benchmark index surged this week with investors looking to positive signs of reopening the economy from the coronavirus lockdown, and picking up undervalued stocks after the benchmark index shed nearly 24 percent (until 15th May) since the onset of the pandemic on 24th of Feb. Heavy buying interest buoyed by renewed retail investor participation consequently led the ASPI to gain ~361 points or 8 percent W-o-W to close at 4,799.89 points.

Index heavyweight JKH contributed 19 percent to this week’s gains as the blue-chip stock rose ~30 percent W-o-W while Banking sector stocks COMB, HNB, and Sampath Bank contributed ~13 percent this week, supported by their positive earnings releases for the March quarter.

Meanwhile, foreign investors continued to exit domestic equities to record net foreign outflow of Rs. 3.4Bn this week (cf. Rs. 3.5Bn last week) amid i) a downgrade in Sri Lanka’s credit rating by Standard and Poor’s this week, ii) a new low in the country’s Purchasing Manager’s Index and iii) a 64 percent drop in merchandise exports for April. Heavy foreign selling was recorded across several key banking stocks ahead of weaker earnings anticipated in the upcoming quarters due to the strain of the COVID-19 pandemic on the sector. Consequently, the YTD outflow reached Rs. 12.1Bn this week.

Meanwhile, activity levels continued to remain relatively strong (above the YTD average turnover of Rs. 1.2Bn) as the Colombo Bourse recorded an average daily turnover of Rs. 1.6Bn for the week (cf. Rs. 1.9Bn last week). However, local HNI and Institutional investor participation contributed only 15 percent to total turnover this week cf. 33 percent last week. Banking sector stocks COMB, HNB and Sampath collectively contributed 63 percent to this week’s crossings while JKH contributed 35 percent this week. Investor buying interest was also visible in EXPO. Markets in the week ahead are likely to take cues from the economic impact of the pandemic and continuing earnings releases while monitoring developments regarding the COVID-19 outbreak in Sri Lanka.

S&P Downgrades Credit Rating to ‘B- Stable’

The rating agency, Standard and Poor’s, downgraded Sri Lanka’s sovereign rating to ‘B- Stable’ (from ‘B Negative’) citing concerns over the country’s fiscal deterioration and debt repayment ability in the backdrop of a weaker economic environment due to the COVID-19 pandemic. However, the Agency kept the outlook ‘stable’ at a lower rating level as the country still has access to multilateral and bilateral resources to meet short-term debt obligations.

S&P noted that the rating downgrade reflects Sri Lanka’s i) modest income levels, ii) weak external profile, iii) sizeable fiscal deficit, iv) extremely high government indebtedness, and v) large interest payment burdens. According to S&P, Sri Lanka’s already limited fiscal space is set to widen due to sweeping tax cuts and import restrictions which would lower government revenue to below 10 percent of GDP in 2020. A reduction in GoSL revenue and CBSL rate cuts by 150bps points is expected to widen the fiscal deficit to 8 percent in 2020 from 6.8 percent in 2019.

With a weak fiscal position, the Agency expects net government debt to exceed 90 percent of GDP in 2020 and interest payment to reach 67.2 percent of revenues in 2020 (the 2nd highest ratio among sovereigns currently rated by S&P). Meanwhile, S&P expects the outbreak to push Sri Lanka’s economy into a recession this year (-0.3 percent in 2020) against earlier expectations of a rebound. However, the Agency expects growth to recover to 4.6 percent in 2021 supported by expansionary fiscal and monetary policies, recovering external conditions, and the resolution of political uncertainty following parliamentary elections later this year.

S&P further estimates per capita income to reach $4,000 in 2021 and real GDP growth to average 3.3 percent in 2020 – 23. Source: Standard & Poor’s, economynext.com

Author:

0 comments: