Stock market gains amid positive retail activity

•  But analysts say sustaining positive sentiment will be difficult due to aggravation of country’s economic woes 

By Nishel Fernando 
Despite the persisting economic troubles and possible negative impacts that could stem from the Ukraine crisis, the Colombo bourse yesterday bounced back significantly from the record losses incurred over last week amid high retail investor activity. 

“After the massive drop in a short period of time, we are seeing a sizable bounce back of the market.
There’s a positive sentiment on a global scale with Russia and Ukraine agreeing for peace talks, which might have influenced the local market sentiment,” First Capital Research (FCR) Head of Research Dimantha Mathew told Mirror Business.

The All Share Price Index (ASPI) recovered by 4.23 percent to 11,577.94 points while the much liquid S&P Sri Lanka 20 Index rose by  5.20 percent to 3,936.81 points at yesterday’s market closure.

The market turnover was Rs.4.29 billion, driven by retail favourite stocks such as ExpoLanka Holdings, Browns Investments, Royal Ceramics, LOLC, Commercial Leasing & Finance PLC and LOFC, which contributed for the majority of the turnover yesterday.

However, Mathew noted that positive market sentiment is likely to wane in the coming weeks, as economic woes of the country being materialised at a faster rate.

“Local economic environment has not changed with the power cuts continuing amid the diesel shortage and other economic woes. We believe that we are in an economic shock that’s already materialising too fast. It will aggravate and everything will come to a complete standstill at a certain point. After that the government would be left with no choice but go for reforms,” he elaborated.

In particular, Mathew weighed in on negative market return during the second half of the year, with April to June likely becoming a volatile period.

“We expect a large hike in policy rates. Similarly, we expect the T-bill rates to hike to close 12 percent. It’s clear that we are going to end up in a double-digit interest rate environment for the remainder of the year, starting from April. Especially April-December is going to be a difficult period. We believe that the second half of the year is  going to be a tough period for the markets with negative returns,” he opined. 

FCR is forecasting the ASPI to finish this year at around 8000 points, below its fair value.
Moreover, Mathew noted that the ongoing Ukraine-Russian crisis to negatively impact on the country’s balance of payment (BoP), with record global high oil prices and impact on tea exports, due to the depreciation of the ruble and attempts to exclude Russia from the global banking system. In addition, he pointed out that the local construction sector could get impacted from the rising aluminium prices while the tourism sector might also face a slow recovery, due to the cancellation of tourist arrivals from Ukraine and Russia. However, the oil palm producers are likely to benefit from this crisis, with global oil palm prices making gains globally.