Credit limit stalemate weighs on Sri Lanka stocks

Wednesday, 4 January 2012 00:03 - - {{hitsCtrl.values.hits}}

Reuters: Sri Lanka’s main share index fell to a one-week low on Tuesday, with large funds and institutional investors subdued by a lack of direction from the regulator on the easing of credit limits and with portfolio allocations undecided for this year.

The rupee closed steady as the Central Bank defended it by pumping in more than $ 30 million.

The main share index ended 0.65 per cent or 39.22 points weaker at 6,035.65, its lowest since 27 December.

Turnover was Rs. 380.1 million ($ 3.34 million), the lowest since 22 December and far below last year’s average of Rs. 2.3 billion. Volume was 31.8 million shares.

Foreign investors were net sellers of 57.47 million shares on Tuesday. Net offshore selling in 2011 was Rs. 19.13 billion, down from a record 26.4 billion in 2010.

“Foreign activities have been pretty subdued, (while) Government funds and most other funds were silent. They must be awaiting portfolio allocations,” an analyst said on condition of anonymity.

The market has been looking for an easing of credit limits imposed by the Securities and Exchange Commission (SEC), which along with the resignation of the regulator’s Head and Deputy and a three per cent currency devaluation, have dampened the market.

Direction from the new SEC Head on credit limits is expected early this month, brokers said.

Complaining that tougher regulation was hurting stock market prices, brokers last November met President Mahinda Rajapaksa to urge him to intervene in his capacity as Finance Minister to revive the slumping bourse.

The index lost 8.5 per cent in 2011 and was Asia’s 10th-best performer after being top in the region until June. It was Asia’s best in 2009 and 2010.

The rupee closed flat at 113.89/90 to the dollar for a 29th straight session since a three per cent devaluation effective from 21 November, with the Central Bank selling more than $ 30 million to defend it, dealers said.

On Tuesday, Central Bank Governor Ajith Nivard Cabraal said the rupee can be “flexible” in future given pressure on the island nation’s balance of payments and declining reserves. He added the bank would not allow “volatile” moves.

The bank has spent some $ 740 million to keep the exchange rate steady since 21 November. It spent a net $ 1.36 billion in the first nine months of last year to keep depreciation pressure at bay.