Shares fall to more than 5-1/2-year low, rupee falls ahead of budget vote

Reuters: Sri Lanka’s shares fell for a third straight session to a more than 5-1/2-year low on Tuesday, as investors awaited a Budget vote later in the day to assess the political stability of the Government led by Prime Minister Ranil Wickremesinghe.

The Colombo Stock Exchange index fell 0.59% to 5,646.78, its lowest close since 9September 2013. The benchmark stock index had fallen 1.63% last week, recording its third straight weekly fall. It declined 2.9% in February, its second straight monthly fall. The turnover was Rs. 390.6 million ($2.19 million), less than half of last year’s daily average of Rs. 834 million. 

Foreign investors sold a net Rs. 10.8 million worth of shares on Tuesday, taking the year-to-date net foreign outflow to Rs. 5.98 billion worth of equities so far this year. Shares in Nestle Lanka fell 2.9%, while Sampath Bank lost 3.1% lower. 

The rupee closed a tad weaker at 178.70/90 per dollar compared to Monday’s close of 178.50/65. Inflows from a sale of $2.4 billion sovereign bonds were expected to boost the rupee. The sale is crucial for the island nation to boost investor sentiment, which was dented by rating downgrades by all three rating agencies after the political crisis in October. 

Sri Lankan Finance Minister Mangala Samaraweera last week presented the 2019 Budget, which raises spending while setting an ambitious goal to reduce the country’s large fiscal deficit. 

An interim Budget vote is scheduled for Tuesday. The Wickremesinghe-led Government’s political stability has been questioned by the Opposition since he was reinstated as Prime Minister after a 51-day political crisis. The final budget vote is scheduled for 5April. 

The rupee has climbed 2.2% so far this year as exporters converted dollars and foreign investors purchased government securities amid stabilising investor confidence after the country repaid a $1 billion sovereign bond in mid-January. Worries over heavy debt repayment after the 51-day political crisis that resulted in a series of credit-rating downgrades dented investor sentiment as the country struggled to repay its foreign loans. 

The rupee dropped 16% in 2018, and was one of the worst-performing currencies in Asia due to heavy foreign outflows. Foreign investors bought a net Rs. 636.3 million worth of government securities in the week ended 6March, the first net inflow in three weeks, but they have sold a net Rs. 2.8 billion so far this year, the Central Bank’s latest data showed.