Central Bank relaxes more FX regulations

Indices declined further this week with the main ASPI losing 88.04 points (or 1.40%) to close at 6219.39 points. The more liquid S&P SL 20 Index too declined 1.30% (46.12 points) over the week to close at 3504.35 points.

JKH was the highest contributor to the week's turnover value, accounting for 14.62% of total market turnover as it contributed LKR 467.76mn. Sampath Bank accounted for 10.26% or LKR 328.41mn of total market turnover value, while Cargills Ceylon, which contributed LKR 297.03mn (or 9.28%) was the third highest contributor to total market turnover. Weekly turnover value however, amounted to LKR 3.20bn, a 34.10% decline relative to last week's value of LKR 4.86bn. Consequently, the week's daily average turnover amounted to LKR 639.99mn relative to last week's daily average of LKR 979.11mn. Market Capitalization too declined 1.39% (or LKR 33.62bn) to LKR 2388.51bn from last week's value of LKR 2422.13bn.

In terms of sector activity, the Banking & Finance sector was the highest contributor to the week's total turnover value. The sector accounted for 35.72% (or LKR 1.14bn) of market turnover, helped primarily by Sampath and Commercial Bank which accounted for 49.08% of total sector turnover.

The Diversified sector meanwhile, accounted for 23.26% (or LKR 744.37mn) of market turnover this week, with JKH accounting for 62.84% of the sector's total turnover. The Beverage, Food and Tobacco sector also topped the list of significant contributors, accounting for LKR 491.22mn (or 15.35%) of market turnover. The sector was driven mainly by Cargills which accounted for 60.47% of total sector turnover.

In terms of share volume too, the Banking & Finance sector was the largest contributor this week, accounting for 43.11% (or 57.28mn shares) of the market's total trades. The Diversified sector contributed 13.67% of total traded volume as 18.17mn shares were exchanged while 15.93mn shares in the Power & Energy sector changed hands, helping account for 11.99% of total market volume.

Kelsey Development Plc was the highest price gainer for the week, gaining 23.08% W-o-W to close at LKR 24.00 compared to last week's close of LKR 19.50. GS Finance was also amongst the top gainers, gaining 18.18% W-o-W to close at LKR 650.00 despite just one of its shares being traded over the week. MTD Walkers meanwhile, gained 16.67% W-o-W to close at LKR 32.90 while Samson International and Union Chemicals were also amongst the top price gainers for the week (+12.91% and +12.83%, respectively).

Kuruwita Textiles was the highest price loser for the week, declining 17.14% W-o-W to close at LKR 20.30. Laugfs Gas (NV) and CAL Finance also topped the price losers' list, closing at LKR 19.70 (-14.35% W-o-W) and LKR 20.00 (-13.79% W-o-W) respectively. Tea Smallholders and Huejay were also amongst this week's price losers (-3.60% and -13.32%, respectively).

The bourse recorded net foreign inflows of LKR 0.43bn relative to LKR 1.94bn recorded last week (77.88% W-o-W decline), as daily average net inflows amounted to LKR 0.09bn relative to last week's average of LKR 0.39bn. Total foreign purchases amounted to LKR 1.11bn, declining 56.08% W-o-W from LKR 2.53bn recorded last week, while total foreign sales increased 15.21% W-o-W to LKR 0.68bn relative to LKR 0.59bn last week. In terms of volume, Richard Pieris and Nation Lanka led foreign purchases, while Browns Investments and Lanka Orix Finance led foreign sales. In terms of transaction value meanwhile, Cargills and Richard Pieris led foreign purchases, while JKH and Commercial Bank led foreign sales.

Point of View

Negative sentiment dominated markets this week as profit taking on blue-chip counters and muted retail activity continued to drive down indices.

Despite market activity picking up marginally on Friday, the 11 point gain in the benchmark ASPI failed to offset a W-o-W decline of 88.04 points. Volumes too were notably thin with turnover value hitting a 9-week low of LKR 0.48bn on Thursday and daily average turnover value declining 37.66% relative to the Y-T-D average of LKR 1.03bn.

Foreign inflows however, extended its positive run as net inflows of LKR 0.61bn helped offset net outflows of LKR 0.18bn over the week. Similar sentiment is likely in the week ahead. The Central Bank (CB) further relaxed foreign exchange regulations this week citing the need to achieve greater efficiency in international trade and enhance the country's overall competitiveness.

The wide-ranging measures span across 10 activities including fund repatriation, eligibility for FX loans and amendments to the Securities Investments Account. The LKR however, hit a four-week low, closing at an average of 127.98 per USD (down 1.16% from last week) amid greater demand for dollars by importers and as foreigners reduced their exposure on soveriegn bonds.

Yields on the 5-year bond rose 10 bps to 11.20% this week as foreign investors reduced their exposure in emerging markets- although not in large quantities - as yields on US treasuries rose. Yields on the shorter-tenor T-bills however, remained largely flat (3M and 6M T- Bill yield down 3 and 1 bps respectively; 1Y yield flat).

Money market rates meanwhile, declined marginally over the week, with both the Inter-bank call money rate and weekly average weighted prime lending rate (AWPR) declining 2bps from last week to close at a weighted average of 8.61% and 12.69% respectively.