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Yesterday’s general election results failed to excite the Colombo bourse—except a short-lived spike in the morning hours— as none of the main political parties didn’t gain a clear majority to form a government of their own.

The poll results showed the ruling-United National Party (UNP) winning most of the seats but fell short of gaining a majority, and is likely to form a national government with the help of President Maithripala Sirisena and his allies in Sri Lanka Freedom Party (SLFP).

“There is no decisive market reaction, because the anticipated majority government could not be formed,” Softlogic Securities COO Danushka Samarasinghe said.

At yesterday’s trading close, the benchmark All Share Price Index was up 0.09 percent or 6.66 points to 7498.70 while the more liquid S&P Sri Lanka 20 Index fell 0.16 percent or 6.67 points to 4157.71. The turnover crossed Rs.1.5 billion.

“There are concerns about how a national government will pave the way for next five years. But those concerns will be addressed soon after the new Cabinet is formed. Then, the outlook will be more robust,” Samarasinghe remarked.

However, he stressed that the overall market trajectory is upwards.

“The market will closely watch the formation of the new Cabinet. The trajectory of the market direction will depend how they could work together in harmony.”
Analysts had earlier pointed out whoever the party came into power would have to deal with some tough issues with regards to the country’s current economic condition and human rights front.

The rupee is under pressure and economists have warned that the country is closing in for another BoP crisis. A UNHRC report on Sri Lanka is also due to be presented at the upcoming UNHRC sessions in September.

However the general consensus appears to be that a government led-by the UNP is better equipped to handle both issues than their predecessors.
According to Asia Securities Manager-Research, Srimal Liyanage, the recent constitutional amendments such as independent commissions and curbing the president’s power to dissolve Parliament would lead to the formation of a stable government.

Both Liyanage and Samarasinghe agreed that the election result could lead to profit realizing by retail investors in the short term but stressed that long term investors would be encouraged to invest in the market due to expected business-friendly environment.  

They also said a market correction is due as leading up to the election, there wasn’t a sufficient correction.

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Rupee steady despite importer dollar demand

REUTERS: The Sri Lankan rupee ended steady yesterday amid importer dollar demand as a state-run bank defended the local currency from declining, while dealers said they expected the central bank to let the market determine the exchange rate after parliamentary polls this week end eight months of political instability.

Former president Mahinda Rajapaksa’s attempt to stage a comeback in the nation’s general election has ended in defeat as election results yesterday showed the alliance that toppled him making decisive gains.

The ruling United National Party was likely to fall just short of an outright majority but Prime Minister Ranil Wickremesinghe should still command enough support to form a stable government.

The rupee ended steady at 134.00 per dollar, as one of the two state-run banks, through which the Central Bank usually directs the market, sold dollars at a flat rate of 134.00.

“There was importer demand and the exporters are reluctant to sell (dollars),” said a currency dealer, asking not to be named.

On Monday, the currency fell for a third session in four, as the state-run bank raised the currency’s peg against the dollar by 10 cents to allow the exchange rate to depreciate to 134.00, dealers said.

They expect the Central Bank, which has so far this year directed the market through the state-run bank, to let the currency remain weaker after Monday’s parliament elections due to importer dollar demand and global trend.

Analysts said the rupee may fall to 137 levels in the short term if the Central Bank allows it to depreciate, in line with the weakening seen in other global currencies against the dollar.

Dealers said there was heavy importer dollar demand with some booking forwards. Exporters held onto dollars, expecting the rupee to depreciate further, they added.

Central Bank officials were not immediately available for comment.

The currency has fallen 0.37 percent since Aug. 5 as the state-owned bank raised the currency’s peg against the dollar by 50 cents on four occasions, allowing the exchange rate to fall.