Stock index recovers to end at fresh peak after plunging on budget woes


COLOMBO– Sri Lanka stocks closed at a new all-time closing high on Monday (15), recovering from an initial plunge due to panic selling of financial sector shares over budget announcements.

On Friday (12), the finance minister proposed a 25% retrospective tax surcharge on firms that earned over Rs 2 billion in 2020/21 and 3% increase on VAT for banks, insurance, and financing firms.

The finance minister said 62 individuals and companies under this category were expecting to generate Rs 100 billion rupees through the tax.

A value added tax (VAT) was increased to 18% from the current 15% on banks and financial service providers under supply of financial services by specified institutions with effect from Jan.1, 2022, targeting Rs 14 billion from the proposal.

“Over the weekend the investors had a lot of time to understand and educate themselves about the changes,” a broker said, elaborating, “When the market opened, we saw a sudden panic selling. But investors wanted to hold on to the stocks that were fundamentally strong, and the market eventually saw a recovery. It is a very positive sign for the market.”

The brokers said investors sold the stocks that were expected to be hit by the 25% tax surcharge. In the morning session, the market fell 2.5%, and the main share index ASPI plunged to 10,372 immediately after it opened and dropped to over 2%.

The fall was led by banks.

However, brokers expected a recovery after some time as it was the same in 2015 when the last government came up with a similar retrospective tax.

The Colombo benchmark All Share Price Index (ASPI) closed 0.81% or 86.28 points higher at 10,752.37, its fresh all-time closing high, while the  S&P SL20 index of more liquid stocks, however, fell 0.49% or 17.57 points to close at 3,598.38.

The day’s turnover was Rs 6.9 billion, above this year’s average daily turnover of over Rs 4 billion rupees.

Foreign investors, however, sold a net of Rs 56.6 million worth of shares, extending the net foreign inflow to Rs 46.2 billion so far this year.

The gain was led by LOLC Finance, LOLC Holdings and Expolanka Holdings.

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