Stock index nosedives after finance minister’s speech; posts highest fall since February
COLOMBO – Sri Lanka’s stock index closed 3.6% weaker on Wednesday (8), a day after Finance Minister Basil Rajapaksa revealed a grim reality about the economy, as investors booked profits amid margin calls.
Wednesday’s loss was the largest percentage index fall since February 22, the bourse data showed.
The finance minister in his debut speech in Parliament said Sri Lanka is facing a severe external crisis as well as a domestic crisis with revenues falling and expenses continuing to rise. He also said the government will not go in for expensive loans and will only opt for concessionary loans.
The multiple crises come amid a coronavirus pandemic and unprecedented money printing which has triggered a plethora of economic controls.
Sri Lanka’s risky assets have unusually gained, partly due to record low interest rates, excess liquidity in money markets, and some businesses being disrupted due to import controls triggered by money printing. The trend of net foreign selling has been continuing since early last year.
Analysts had expected a market fall with the central bank’s unexpected monetary tightening measures since August 19 and successive increase of a ceiling yield on 12-month Treasury bills.
“The margin calls are one reason for the market fall,” a broker said.
“And the other reason is the rates of the rupee. Yesterday (Tuesday -7) the central bank quoted the rupee around 200 against the US dollar and that has brought a negative impact to the market,” he added.
The broker said the import and export industry has been impacted due to a mismatch between the dollar rate quoted by the central bank and the rate at which importers can buy.
Brokers said, if a market correction starts, the market will fall by 10-15%.
The index closed 328.53 points down at 8,764.21 points and continued to fall throughout the day recording a daily low of 8,660.85 points.
The S& P SL20 index of more liquid stocks fell 2.33% or 79.48 points to close at 3,335.98.
Foreign investors sold a net 244 million worth of shares on Wednesday, and the market has suffered a net foreign outflow of over Rs 41.1 billion rupees so far this year.
The day’s turnover was Rs 10.4 billion, well over this year’s average daily turnover of around Rs 4 billion.
The fall was led by, Expolanka Holdings, LOLC holdings and Brown Investments, which have been on the rise in August on speculation that their dollarized assets were going to increase the profitability despite economic hardships.
Expolanka Holdings, the market heavyweight which has the highest market capitalization in the market and a significant export component in its business, fell 6.27% to close at Rs 172.00.
LOLC Holdings fell 7.86% to close at Rs 545.00 a share and Browns Investment fell 10.58% to close at Rs 9.30.
The bourse saw 36 stocks gaining against 157 falling on Wednesday.