Stocks fall despite rate cut; rupee steady

Reuters: Shares ended weaker on Friday, snapping three straight sessions of gains, as foreign investors sold risky assets and the market shrugged off a widely-expected rate cut by the Central Bank. 

The rupee closed steady, market sources said. Before the markets opened on Friday, the Central Bank cut its key interest rates to support its faltering economy as overall business and consumer confidence slumped in the wake of last month’s deadly bomb attacks. 

Traders said the Easter day bombings and aftermath violence, and worries over slowing economic growth weighed on investor sentiment. Most investors have shied away from the market since the 21 April bombings that killed more than 250 people. 

Sri Lanka is unlikely to hit its full-year economic growth target of 3-4% following the Easter Sunday bombings, Junior Finance Minister Eran Wickramaratne told Reuters last week. A Reuters poll has predicted the growth to slump to its lowest in nearly two decades this year. 

The Central Bank Chief said on Friday that he expected the economy to grow by 3% or less this year due to the impact of the deadly Easter bomb attacks, and the bank was preparing a downward revision to its earlier projection for 4% growth. 

The benchmark stock index ended 0.26% weaker on Friday at 5,310.95. It rose 0.3% for the week, recording its second straight weekly gain. The bourse has declined 12.25% so far this year. 

The Government’s pension fund has resumed investing in risky assets as the stock market is “extremely undervalued at the moment and is considered a good time to go into”, the Central Bank Governor said. Turnover was Rs. 167.8 million ($952,327), less than a third of this year’s daily average of around Rs. 550.6 million. Last year’s daily average was Rs. 834 million. 

Foreign investors sold a net Rs. 11.4 million worth of shares on Friday, extending the year-to-date net foreign outflow to Rs. 5.55 billion worth of equities. The rupee ended steady at 176.40/55 per dollar, compared with Thursday’s close of 176.40/50, market sources said. Analysts expect the rupee to weaken further as money flows out of stocks and Government securities. 

The rupee fell 0.06% for the week but is up 3.5% for the year. Exporters had converted dollars as investor confidence stabilised after a $1 billion sovereign bond was repaid in mid-January. The rupee dropped 16% in 2018 and was one of the worst-performing currencies in Asia. 

Foreign investors bought a net Rs. 2.1 billion worth of Government securities in the week ended 22 May, but the island nation saw a net foreign outflow of Rs. 19.1 billion so far this year, Central Bank data showed. 

Investor sentiment was damaged at the end of last year when President Maithripala Sirisena abruptly removed Prime Minister Ranil Wickremesinghe and then dissolved Parliament. A court later ruled the move unconstitutional, but the political turmoil led to credit rating downgrades and an outflow of foreign funds.