Stock market declines on ratings downgrade

Reuters: Sri Lankan shares fell more than 1.2% to close at its lowest in nearly two years in thin trade on Tuesday after Fitch Ratings downgraded the country’s rating, while rising market interest rates also dampened market sentiment.

On Monday, Fitch downgraded Sri Lanka’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to B-plus from BB-minus on increasing refinancing risks, significant debt maturities, and weaker public finances.

Sri Lanka’s benchmark share index closed 1.27% lower, or down 78.41 points at 6,113.40, the lowest close since 11 April 2014.

“It’s a horrible day. Today market dipped mainly because of the Fitch downgrading,” said SC Securities Ltd Head of Research, Yohan Samarakkody.

“Rating of a country is one key area investors are looking for. When it’s downgraded, it’s going to impact.”

Investors are waiting for the country’s negotiations with the IMF for a loan to progress in order to gauge the direction of the market, analysts said.

Sri Lanka is in initial talks with the IMF about a loan amid concerns over pressures on its balance of payments, outflows from government bonds and a ballooning fiscal deficit.

The index remained in the oversold territory for the sixth straight session, with the 14-day relative strength index at 21.663, Thomson Reuters data showed.

A level between 70 and 30 indicates the market is neutral.

The 182-day and 364-day t-bill yields rose 50 to 55 basis points last week to a more than two-year high, after the central bank raised key policy rates by 50 basis points from record lows.

Turnover was Rs. 566.9 million ($3.94 million) on Tuesday, below this year’s daily average of Rs. 705.5 million.

Foreign investors were net buyers for the third straight session, purchasing Rs. 14.5 million worth of shares on Tuesday.

Shares in Ceylon Tobacco Company Plc fell 2.99%, while Bukit Darah Plc fell 6.27% and Carson Cumberbatch Plc fell 13.25%.

Conglomerate John Keells Holdings Plc fell 0.88%.