Colombo Stock market hits 2-month low after Govt’s retrospective tax plan

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COLOMBO (Reuters): Shares fell 2.89% to a more than two-month low on Friday, their biggest fall since February 2011, led by blue chips on concerns over future earnings after the Government imposed a retrospective 25% ‘super gain tax’ in its supplementary budget. Sri Lanka’s new Government on Thursday announced a Budget that imposed new taxes on cash-rich firms to pay for pay hikes for workers and tax cuts on key commodities, hoping to woo voters as it approaches a parliamentary election. The main stock index, which fell as much as 2.89% during the day, ended 2.66% weaker, or down 196.46 points, at 7,180.05, its lowest since 1 December, Thomson Reuters data showed. Finance Minister Ravi Karunanayake imposed a one-time super gain tax of 25% on individuals or companies that earned more than Rs. 2 billion in profits in 2013/2014. “Today’s drop was led by the fall in the big caps after the budget,” said Dimantha Mathew, manager, research at First Capital Equities Ltd. “Interestingly huge net foreign buying was seen. With the net foreign inflow, the market fall might slowdown.” Foreign investors were net buyers of Rs. 451.3 million worth of shares on Friday, reversing the net foreign trade so far this year to net buying. They have been net buyers of Rs. 120.1 million. They bought a net Rs. 22.07 billion worth of stocks last year. Analysts said the market came off due to panic selling because of the super gain tax which affects large caps. Analysts said the market would trade lower in the coming days on selling in top conglomerate John Keells Holdings , Dialog Axiata, Sri Lanka Telecom, Ceylon Tobacco Company and Nestle as they would have to pay the new tax. Shares in Dialog Axiata Plc fell 12.41% while conglomerate John Keells Holdings Plc fell 5.02%, and biggest listed lender Commercial Bank of Ceylon Plc lost 6.56%. After the market closed John Keells posted a 28% gain in its third quarter net profits. Analysts, however, expect the raft of tax concessions and salary hikes in the budget to increase consumers’ disposable income and help the market rally over the long term. Turnover was Rs. 2.07 billion Sri Lankan ($ 15.66 million), more than last year’s daily average of Rs. 1.42 billion, exchange data showed.      

Sri Lanka rupee forwards end tad firmer on late exporter dlr sales

  COLOMBO (Reuters): Rupee forwards closed a tad firmer on Friday due to late exporter dollar sales after moral suasion by the Central Bank capped a fall in the local currency in early trade, dealers said. Currency dealers said the rupee may depreciate because of an expected increase in consumption after a raft of tax reductions on key commodities in the budget. Fears of depreciation kept exporters away from the market, resulting in the currency’s fall, leading the central bank to cap four-day forwards at 133.00 and one-week forwards at 133.50, dealers said. One-month forwards ended at 133.67/70 per dollar with compared with Thursday’s close of 134.00/10. One-week forwards ended steady at 133.50/60 per dollar due to the central bank’s moral suasion. “There were some exporter conversions later in the day which eased the pressure on the currency,” said a dealer. Some other dealers said the currency will be under pressure with the increase of disposable income from the budget. The new Government on Thursday imposed taxes on cash-rich firms to pay for populist policies and tax reduction on key commodities in a bid to woo voters as it faces a parliamentary election in the second quarter. Dealers said exporters were reluctant to sell as they expected further depreciation in the currency in the short term, with the widening trade balance and in line with global currencies. Spot currency has not been trading, while forwards have been trading with downward pressure, dealers said. The market had been expecting a flexible exchange rate with more foreign grants under the new Government as opposed to the controlled exchange rate regime earlier.