Stock market positive as assurances on DDO boost investor confidence

• Both indices close in green; day’s turnover tops Rs.2bn
• Investors show interest in banking stocks, defying fears about DDO
• DDO framework to be unveiled this week 
• SL needs a debt reduction of about US $ 17bn to make its debt sustainable

The Colombo Stock Exchange (CSE) investors took the impending Domestic Debt Optimisation (DDO) announcement positively, as both indices closed in green, with investors particularly showing interest in banking stocks, a sector many feared would be impacted negatively by the DDO. 

Central Bank Governor Dr. Nandalal Weerasinghe on Sunday assured that the DDO framework, which will be announced this week, would have no adverse impact on the country’s banking sector or the bank deposits of the people.
Dr. Weerasinghe said the DDO framework prepared by the Central Bank and Finance Ministry would be announced this week, after the Cabinet and parliamentary approvals.

The framework to be unveiled will cover part of the country’s US $ 46.9 billion domestic debt, of which US $ 27.8 billion is held as Treasury bonds, according to the latest Finance Ministry data.
Sri Lanka is yet to announce a deal to restructure its foreign debt pile of about US $ 36 billion. The government maintains that it has made successful negotiations with the country’s bilateral and commercial creditors and the DDO will help to finalise a deal with the foreign creditors.
As per the International Monetary Fund estimates, Sri Lanka needs a debt reduction of about US $ 17 billion, to make its debt sustainable.

The government has already assured that the DDO will not include principal haircuts. It is speculated that the upcoming DDO will include maturity extensions, with coupon 
rate cuts.

However, some analysts believe that this could be the first step towards a DDO that will have a few more phases in the coming months. They point out that with just maturity extensions and coupon cuts, it would be difficult to bring 
Sri Lanka’s debt to sustainable levels.
Meanwhile, the All Share Price Index of the CSE yesterday gained 1.02 percent of 94.83 index points to close at 9,434.26, while the more liquid S&P SL 20 index gained 1.54 percent or 41.42 index points to close at 2,714,86.
The turnover for the day was Rs.2.23 billion, with both high-net-worth investor and retail investor interest present. 

According to NDB Stockbrokers, high-net-worth and institutional investor participation was noted in John Keells Holdings, Hatton National Bank and Sampath Bank. Mixed interest was observed in Commercial Bank, Melstacorp and Hayleys, while retail interest was noted in Softlogic Capital, Amana Bank and Browns Investments. 
Foreign participation in market activity remained at subdued levels, with foreigners closing as net buyers, with a net foreign inflow of Rs.88.8 million