Market panics following another devaluation of the Rupee

Sri Lanka’s Central Bank today further devalued the rupee by moving it up by 30 cents to set a conversion rate of 114.20 per dollar from Rs. 113.90 levels set yesterday, to reflect the government’s 3% devaluation.

However the bank once again went back to the original position of Rs. 113.90 per dollar by around 1 pm thus reflecting the latest 3% devaluation of the currency.

A dealer from the state bank said the sudden move might have been to reduce the demand for dollars in the market.

He said, “All banks are buying dollars and there is a shortage in the market”

However a forex dealer working in a private bank who did not wanted to be quoted said the “move is strange”.

He said, “adjusting and readjusting the rate frequently does not send a proper signal to the market”.

“No body was certain where to place the dollar”, another dealer said.

The latest move, which dealers say took the market by surprise, amidst the Central Bank Governor Nivard Cabraal claiming on Monday that the exchange rate will not be cut any further other than the 3% devaluation which took place yesterday.

According to Reuters on Monday (November 21st) Cabraal has said, “We’ll depreciate by 3 percent tomorrow and that will be that. We will not do any more than 3 percent, because there is too much speculation. If we had allowed it to move down on its own, people would have been speculating. So now they know where we will have stopped,”
http://www.news360.lk/economy/market-panics-following-another-devaluation-of-the-rupee

http://www.smh.com.au/business/world-business/global-stocks-at-sixweek-lows-on-recession-worries-20111124-1nvfn.html

Other markets also down.... no reason to panic...mow picking up gradually..

When currency is devalued the stock prices should go up, not down.

Because 100 Rupees note yesterday is now worth 97 rupees. / You have to pay 103.10 Rs today to buy a good sold at 100.00 Rs yesterday
A share worth 100 rupees yesterday is now worth 103.10 rupees.

While a currency is devalued, value of stocks, houses, cars gold and other assets remains same hence you have to pay higher price for them.

Chinwi wrote:When currency is devalued the stock prices should go up, not down.

Because 100 Rupees yesterday is now 97 rupees.
A share worth 100 rupees yesterday is now worth 103.10 rupees.


While a currency is devalued, value of stocks, houses, cars gold and other assets remains same hence you have to pay higher price for them.

it should also attract foreign money. at least that is what the theory says

Chinwi wrote:When currency is devalued the stock prices should go up, not down.

Because 100 Rupees note yesterday is now worth 97 rupees. / You have to pay 103.10 Rs today to buy a good sold at 100.00 Rs yesterday
A share worth 100 rupees yesterday is now worth 103.10 rupees.

While a currency is devalued, value of stocks, houses, cars gold and other assets remains same hence you have to pay higher price for them.

It seems our people think in otherway around....Which is worth 100 yesterday is worth 97 today.They do not understand that devaluation is only to money not to good or service.

rijayasooriya wrote:

Chinwi wrote:When currency is devalued the stock prices should go up, not down.

Because 100 Rupees note yesterday is now worth 97 rupees. / You have to pay 103.10 Rs today to buy a good sold at 100.00 Rs yesterday
A share worth 100 rupees yesterday is now worth 103.10 rupees.

While a currency is devalued, value of stocks, houses, cars gold and other assets remains same hence you have to pay higher price for them.

It seems our people think in otherway around....Which is worth 100 yesterday is worth 97 today.They do not understand that devaluation is only to money not to good or service.

Mewa therum karalaa wedak naha rajasooriys..They never understand. Kabala rathwechcha welaawe rotii tikak puchcha ganna balanna..!

Auther wrote:

rijayasooriya wrote:

Chinwi wrote:When currency is devalued the stock prices should go up, not down.

Because 100 Rupees note yesterday is now worth 97 rupees. / You have to pay 103.10 Rs today to buy a good sold at 100.00 Rs yesterday
A share worth 100 rupees yesterday is now worth 103.10 rupees.

While a currency is devalued, value of stocks, houses, cars gold and other assets remains same hence you have to pay higher price for them.

It seems our people think in otherway around....Which is worth 100 yesterday is worth 97 today.They do not understand that devaluation is only to money not to good or service.

Mewa therum karalaa wedak naha rajasooriys..They never understand. Kabala rathwechcha welaawe rotii tikak puchcha ganna balanna..!

panic selling loosers,aimiable,Rajasooriya appreciate your efferts while evryone promoting negative thoughts you are doing a good job.

Devaluation would encourage forein investors to buy. Bcz they can buy more shares from $100 now than before. For instance JKH is now trading at 175/-If a foreiner wants to buy 1000 JKH shares;

Before Budget -cost -175x1000=175000
Cost in $ before Budget -175000/110.00=$1590.90
After Budget -175000/113.80 =$1537.78
Cost reduction -$1590-1537=$53.
Your views are welcome

Rajaraam wrote:Devaluation would encourage forein investors to buy. Bcz they can buy more shares from $100 now than before. For instance JKH is now trading at 175/-If a foreiner wants to buy 1000 JKH shares;

Before Budget -cost -175x1000=175000
Cost in $ before Budget -175000/110.00=$1590.90
After Budget -175000/113.80 =$1537.78
Cost reduction -$1590-1537=$53.
Your views are welcome

You are correct.
Always devaluation profitable for foreigners who are investing, but we need to think the other way around also.
When they sell and pull back their investments the dollar devaluation will affect them.

boneless tongues turns every time and say different tings at each time. next time will be another one off second appropriation and we lose every ting.

sriranga wrote:

Rajaraam wrote:Devaluation would encourage forein investors to buy. Bcz they can buy more shares from $100 now than before. For instance JKH is now trading at 175/-If a foreiner wants to buy 1000 JKH shares;

Before Budget -cost -175x1000=175000
Cost in $ before Budget -175000/110.00=$1590.90
After Budget -175000/113.80 =$1537.78
Cost reduction -$1590-1537=$53.
Your views are welcome

You are correct.
Always devaluation profitable for foreigners who are investing, but we need to think the other way around also.
When they sell and pull back their investments the dollar devaluation will affect them.

So that's good. That means they cant/will reluctant to sell bcz they are losing. So this reduce selling pressure. Isn't it?

kumudu wrote:boneless tongues turns every time and say different tings at each time. next time will be another one off second appropriation and we lose every ting.

Boneless ppl means who doesnt know the subject well and talking nonsense. No bones and no brain also.

From the forecasts i have seen the dollar is expected to come down in value from January onward

Rajaraam wrote:

sriranga wrote:

Rajaraam wrote:Devaluation would encourage forein investors to buy. Bcz they can buy more shares from $100 now than before. For instance JKH is now trading at 175/-If a foreiner wants to buy 1000 JKH shares;

Before Budget -cost -175x1000=175000
Cost in $ before Budget -175000/110.00=$1590.90
After Budget -175000/113.80 =$1537.78
Cost reduction -$1590-1537=$53.
Your views are welcome

You are correct.
Always devaluation profitable for foreigners who are investing, but we need to think the other way around also.
When they sell and pull back their investments the dollar devaluation will affect them.

So that's good. That means they cant/will reluctant to sell bcz they are losing. So this reduce selling pressure. Isn't it?

I think the following illustration will explain the situation to certain extend.
If I'm wrong please correct me.


For example if he bought 1000 JKH share@ 175 before the devaluation= Rs 175000
@110 per dollar, He invested US$ 1590.90.
After the devaluation
If he sells @ 180 and pulls back his investment will give him Rs.180,000.
Todays US dollar rate lets take 114 he will get US$ 1578.00.
So he will incur LOSS.
IMHO the foreign investors expected ROI will increase to equate the difference.
( If it is 10% (for example) now they need to increase around 13%)
At this present condition I do not think so there will be a selling pressure from them due to the down trend.

I think its not the numbers and percentages that is important in investing in a country. The manner of devaluing the currency is not a good incentive for attracting investments.

We're looking at everything as if CSE is the center of the universe. We blame credit. We blame government actions. We blame SEC.
What happens in the USA, Europe, Asia affects us and nobody is doing well. Some big countries are bankrupt. Big 100 year old established businesses are going bankrupt.

insidertrader wrote:We're looking at everything as if CSE is the center of the universe. We blame credit. We blame government actions. We blame SEC.
What happens in the USA, Europe, Asia affects us and nobody is doing well. Some big countries are bankrupt. Big 100 year old established businesses are going bankrupt.

You are not very correct mate...


So far I was correct on disposing my PF...
by Tiger on Wed Aug 24, 2011 6:00 pm

I am clearing my PF...
by Tiger on Fri Aug 19, 2011 11:30 pm

I am clearing even my long term counters and moving to defensive stocks. The whole world is gearing for a global slowdown and SL may not be immune to that. Current market valuations are not up for value for money. How you read the market for 2011 second half and 2012?

sriranga wrote:

Rajaraam wrote:

sriranga wrote:

Rajaraam wrote:Devaluation would encourage forein investors to buy. Bcz they can buy more shares from $100 now than before. For instance JKH is now trading at 175/-If a foreiner wants to buy 1000 JKH shares;

Before Budget -cost -175x1000=175000
Cost in $ before Budget -175000/110.00=$1590.90
After Budget -175000/113.80 =$1537.78
Cost reduction -$1590-1537=$53.
Your views are welcome

You are correct.
Always devaluation profitable for foreigners who are investing, but we need to think the other way around also.
When they sell and pull back their investments the dollar devaluation will affect them.

So that's good. That means they cant/will reluctant to sell bcz they are losing. So this reduce selling pressure. Isn't it?

I think the following illustration will explain the situation to certain extend.
If I'm wrong please correct me.


For example if he bought 1000 JKH share@ 175 before the devaluation= Rs 175000
@110 per dollar, He invested US$ 1590.90.
After the devaluation
If he sells @ 180 and pulls back his investment will give him Rs.180,000.
Todays US dollar rate lets take 114 he will get US$ 1578.00.
So he will incur LOSS.
IMHO the foreign investors expected ROI will increase to equate the difference.
( If it is 10% (for example) now they need to increase around 13%)
At this present condition I do not think so there will be a selling pressure from them due to the down trend.

but there is no real point in pulling out money after the devaluation. If there is an impending devaluation that is when you should consider pull out. The government was crafty about this, they made a one off devaluation overnight before anyone can react to it. thus the horse left before people even realized it.

were there force selling or any other reasons.....

Fantastic, I think you will become Very Rich Very Soon, or you must have already. Congrats..........

Aamiable wrote:were there force selling or any other reasons.....

Don't forget that the brokers are allowed to give credit as much as they want.

They just need to show liquid assets to back them up to prevent a market crash. That is credit money is not magically produced out of thin air but backed by real money.

Then there is nothing to worry.. Market recover tomorrow onwards..no need to panic.....

Aamiable wrote:Then there is nothing to worry.. Market recover tomorrow onwards..no need to panic.....

Agreed,nothing to worry in long term this won't affect that much.