Rate cut will boost equity markets

Tuesday, 23 October 2012 00:42 - - {{hitsCtrl.values.hits}}

A cut in policy rates if implemented today will boost equity markets whilst yesterday investor sentiments were negative with retailers adopting a wait and see attitude.

“The market started on a positive note, but went on to lose ground while activity remained low. Turnover saw the lowest levels since mid August,” NDB Stockbrokers said.

“The monetary policy review is due and a possible reduction in policy interest rates may boost the equity markets,” NDBS added.

“Retail interest remained subdued due to force selling and it was evident that retail investors were adopting a ‘wait-and-see’ approach,” noted Asia Wealth Management.

Reuters said the market slumped on Monday to its lowest level in six weeks with turnover skidding to a two-month low on retail selling on margin calls ahead of the Central Bank’s Board meeting on rate policy later in the day. Analysts said investors remained on the sidelines ahead of an announcement on Central Bank monetary policy due on Tuesday.

The Colombo Stock Exchange’s main index fell 1.69 per cent, or 95.64 points, to 5,553.89, its lowest close since 7 September.

“Colombo stocks nose-dived after the short lived uptick in the bourse late last week. By 11 a.m. the benchmark index had dipped approximately 40-50 points as it hovered around the 5,600 mark up until the final hour of the day. However a further dip was witnessed during the final hour of trading as the index settled at 5,553.9,” Softlogic Stockbrokers said.

The low level of activity continued to haunt amidst the lack of investor interest, it added.

The day’s turnover was Rs. 257.1 million ($ 1.99 million), lowest since 17 August, and less than a third of this year’s daily average of Rs. 945 million.

The market saw a net foreign inflow of Rs. 36 million, extending the net offshore inflow to Rs. 33.55 billion so far this year.

“The slide down in the Bourse seems to be continuing though on low volumes suggesting the deterioration of selling pressure. However the lack of buying interest seems to be the main factor bringing down the market on low volumes. The market valuations remain strong and the expected earnings of the September quarter is likely to suggest a marginal recovery in the overall economy,” Softlogic said.

“Taking note of these developments we advise investors to further accumulate counters with a higher weightage towards the banking and finance sector,” it added.

“There is selling pressure as some brokers forced retailers to settle debts and they had to come down and sell at lower prices,” a stockbroker said on condition of anonymity.