Colombo bourse signals favourable response to new administration

• Current optimism fixed on expectations of new admin sticking to IMF-backed stabilisation and reform agenda 
• Market not taken by surprise on outcome of election

By Nishel Fernando 

The Colombo bourse yesterday closed in green in continuing with the bullish sentiment, signalling a favourable response to the new President Anura Kumara Dissanayake, who was sworn in yesterday.

The benchmark index, the All Share Price Index (ASPI), experienced a steep decline over 180 points during the first few minutes of the trade. However, it recovered gradually during the rest of the day, with a gain of 130 points or 1.99 percent, reaching 11,097 points. The more liquid S&P SL20 index was up by 1.88 percent or 58.43 points to 3160.63 points.

“It appears to be a positive reaction to smooth and peaceful transition of power,” Capital Alliance Holdings Ltd Chief Executive Officer Kanishke Mannakkara told Mirror Business yesterday.

However, he insisted that the possible continuity of this optimistic reaction seen yesterday is fixed on the expectations of the new administration maintaining the current stable environment. 

“The market looks cheap. Hence, provided that the government sticking into the stabilisation programme and reform agenda, you might see continuous positive momentum,” Mannakkara added.

The current market expectations are that the new administration wouldn’t attempt to change the Debt Sustainability Analysis and instead, would focus on discussions on possible modalities. 

If any signals emerge contrary to the current expectations, Mannakkara cautioned that the current market sentiment could change significantly.

Meanwhile, Softlogic Stockbrokers Co-Head of Research Raynal Wickremeratne noted that the market has already prepared itself for a possible National People’s Power (NPP) victory. Hence, he opined that the market was not taken by surprise on the outcome of the elections. “The CSE had been factoring the possibility of the arrival of an NPP president over the past few months, which is what had led to its decline, as such the market is believed to have factored this impact to a great extent,” he added.

Especially, the banking sector was a key driver of the market turnover yesterday, accounting for 36 percent of the overall turnover of Rs.994.3 million. Wickremeratne noted that this was in response to the positive news that came along with the external debt restructuring announcement last week. 

According to Softlogic Stockbrokers, the banking stocks were trading at around 40 percent discount to the market price-to-book value while the sector generated around an average of 12 percent in return on equity.

However, foreign investors remained net sellers yesterday, with a net outflow amounting to Rs.5.2 million.

In the secondary market in Singapore, there was a panic selling of Sri Lanka’s dollar bonds. According to Bloomberg, the bonds maturing in March 2029 declined 3.1 cents, recording the biggest drop in about two years, to 50.2 cents on the dollar yesterday.