Stocks jump more than 1-year high after Rajapaksa win; rupee up

Shares jumped to their highest in more than a year in heavy volume, while the rupee rose to a two-and-half month high yesterday, after former wartime defence chief Gotabaya Rajapaksa won the presidency by a big margin.

Rajapaksa made national security his top priority after being sworn in yesterday at an ancient temple in the north-central city of Anuradhapura, where he received blessings from Buddhist monks. 

Majority of Sinhala Buddhists voted for him after he campaigned on promises to make the nation safer in the aftermath of the Easter bombings earlier this year.

Standard Chartered Bank (SCB), in a note to investors, said the election outcome was positive for Sri Lanka and reduced political uncertainty, which should boost economic growth.
“Sri Lanka’s political establishment faces the twin economic challenges of boosting growth and improving debt sustainability. We expect support across party lines for ongoing cooperation with the IMF to address these problems,” SCB said in the note. 

It also said: “Negotiating a new IMF programme is crucial to ensuring market access, in our view, given large upcoming government external refinancing needs of US $ 3 billion a year over the next five years. We expect the IMF to remain supportive; it has already agreed to a slower pace of fiscal consolidation.”

Analysts before the election had raised concerns over giveaways promised by the two top presidential candidates, after officials and a credit rating agency warned that their pledges could push the country deeper into debt.

Rajapaksa has vowed to cut by half a Value-Added Tax (VAT) of 15 percent and abolish some taxes as a way to reignite consumption.

The benchmark stock index, which jumped near 1.9 percent in the early trade, ended 1.8 percent firmer at 6,129.56, its highest close since August 10, 2018. The bourse rose 1.53 percent last week, and it is up 1.28 percent for the year. The day’s gain was the biggest single day rise since July 29.  

“Since we already have the macroeconomic stability and now got the political stability, investors will be positive with expected growth in low interest rates,” said Dimantha Mathew, Head of Research at broker First Capital Holdings.

The rupee ended 0.5 percent firmer at 179.40/80 per dollar, its highest since August 30. It closed at 180.10/30 on Friday and is up 1.8 percent so far this year.

Foreign investors were net sellers of riskier assets for an eighth straight session yesterday.

They sold a net Rs.391.6 million worth of shares yesterday, extending the net foreign outflow from the equities market to Rs.8 billion for the year, according to index data.

Equity market turnover was Rs.2.4 billion, its highest since September 17 and well above this year’s daily average of about Rs.696 million. Last year’s daily average was Rs.834 million.

Meanwhile, foreign investors bought government securities on a net basis for the fourth time in six weeks, buying a net Rs.2.2 billion worth of government securities in the week ended November 13.

Total foreign outflows from government securities through November 13 stood at Rs.48 billion, the Central Bank data said.