Stock market soars as DDO excludes banks

• Bourse hits 10-month high; ASPI closes over 10, 000-point mark
• ASPI gains 6.7%; S&L SL 20 gains 10%; turnover tops Rs.7bn
• Bank stocks soar; analysts believe momentum will sustain

The Colombo bourse soared to a 10-month high yesterday, recording a remarkable 6.71 percent increase and surpassing the significant milestone of 10,000-point mark.
This surge in stock prices coincided with the government’s decision to exclude the banking sector from the proposed Domestic Debt Optimisation (DDO) plan, effectively putting an end to the extended period of uncertainty surrounding the market.

The All Share Price Index (ASPI) was up by 6.71 percent or 633.69 points to close at 10,076.64, reaching nearly a 10-month high. The more liquid S&P SL 20 Index gained 10.29 percent or 279.17 points to close at 2,992.82.
The market generated a turnover of Rs.7.28 billion, recording a five-month high.
Market analysts are of the view that the upbeat performance will sustain as the market is emerging from a depressed condition and given the expected economic recovery in the second half of the year.

“It will be sustainable. The market was depressed because of the DDO. We are hoping the second half of the year to be positive with the economic recovery kicking in,” First Capital PLC Chief Research & Strategy Officer Dimantha Mathew told Mirror Business. 
Capital Alliance Limited (CAL) opined that a market re-rating is warranted as the market trades at a steep discount on both inflation-adjusted basis and on PER basis. Further, the CAL predicted that increase in foreign participation is likely with debt metrics improving and impending conclusions of debt restructure.

Mathew is banking stocks to pick amid reduction in provisioning and NPLs with the expected economic recovery. The Banking stocks were among the top gainers yesterday.Hatton National Bank share was up Rs.18.25 to Rs.to 157.25, while Commercial Bank share was up Rs.12.80 to Rs. 80.90. Sampath Bank share was up by Rs.8.10 to Rs.64.00.
With the country moving towards to a lower interest rate regime, FCR expects private credit to pick up in the coming period.
FCR anticipates the ASPI to reach approximately 12,000 points by the end of the year, while CAL projects the Index to conclude within the range of 11,500 to 12,500 points.