Investors snub rating downgrade as market indices end in green

• Both ASPI and S&P SL20 indices end in green territory, despite rate cut 
• Turnover tops Rs.2.4bn; 82.8mn shares change hands
• ASPI gains 9% in Nov.; average monthly turnover tops Rs.2.5bn

Stock investors snubbed the sovereign downgrade by Fitch Ratings last Friday, as the market continued its bull run in the first session opened on Monday, after the rating action.

The benchmark All Share Price Index (ASPI) added 1.02 percent or 62.90 points to close the day at 6,243.76 while the more liquid S&P SL20 gained 0.83 percent or 20.24 points to close at 2,453.87. 

Further, 82.8 million shares changed hands, generating a turnover of Rs.2.4 billion. Foreign participation in the market activity remained at subdued levels, with foreigners closing as 
net sellers.

According to NDB Securities, during the month of November, the ASPI and S&P SL20 gained 9.03 percent and 7.52 percent, respectively while recording an average daily turnover of Rs.2.54 billion.

Sri Lanka’s Finance Ministry dismissed the rating action in a strongly worded response on the same day, saying it was “based on uncorroborated facts” and “demonstrates prejudicial approach”. 

“Practices of this nature by an international rating agency without a constructive engagement with the government on the promising alternative, policy approaches are likely to make the agency concerned completely irrelevant, as the country rises strongly in the period ahead,” the Finance Ministry 
statement said.

“As the relative share of outstanding foreign debt has already fallen to 44 percent, as per the latest available data, projecting a rise in foreign debt servicing obligations in the period ahead cannot be corroborated with facts. 

Based on such unfounded assumptions, Fitch Ratings projects a government debt to GDP ratio of 100 percent at end-2020 and 116 percent at end-2024, while grossly overestimating the budget deficit at around 11.5 percent of GDP in 2021 and 2022. The rating action announced today is based on these ill-informed model projections, without any evidence-based and objective analysis,” it added.