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FINANCIAL CHRONICLE™ » EXPERT CHRONICLE™ » Why am I so pessimistic about Sri Lanka's Equity Market

Why am I so pessimistic about Sri Lanka's Equity Market

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Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
I have listed below the reasons why I am so pessimistic about the current investment opportunities in the Colombo Stock Market.

a) Interest rates are on its way up.

From as low as 7% p.a interest rate few months ago the rates are spiraling upward with each bank competing with the one another to attract deposits. Few weeks ago I noticed one of the leading listed commercial bank (Nation Trust Bank) offering 12% p.a for 6-12 months deposits via email campaign few days later be out done by Pan Asia Bank with a offer of 15% p.a for 5 year deposits. With this trend 20% p.a is not impossible!!

As a depositor I am delighted to see this kind of increase in interest rates, which will make my money work for me without my having to work at all. If interest rates are going to be above 15%p.a it may not be a bad idea for me to sell all my business including stock market investment and deposit everything in a fixed deposit. Tell me any business that could guarantee you 15% Net Profit per annum without any risk!! Wow is going to be wonderful!!

Although I am delighted personally the impact of interest rates to the economy is likely to be horrendous. High interest rates will drive away the investors from stock market towards debt market, drying the opportunities that prevailed in the capital market for companies to raise low cost equity funding for their operations and future expansions. Alternatively companies will now have to resort to borrowed capital which will significantly reduce the future profitability and corporate earnings. This will further have a significant impact on the stock valuations and market capitalization. Will stock market slump further!! ASI 4000??... only time will tell us.

b) Sri Lankan Rupee devaluation

You hear every where, that Sri Lankan Rupees is likely to be devalued soon!!. Some say its 5% others say its by 20%. This apparently to reduce the pressure on Sri Lanka's Foreign currency reserves and resultant high interest rates. Whatever is the case, this is likely to have sever impact to the economy. Can devaluation of the rupee could solve the current crisis. To me, answer is no !!! Sri Lanka is a import driven economy and any devaluation in of the rupee is likely to have a significant impact on inflation (The Cost Push Inflation) and intern the cost of production and services of all companies and industries. Among our imports Crude oil remain one of the biggest import cost to the country and any notable increase is likely to have a significant impact to all sectors of the country including high depended Transport, Electricity, manufacturing sectors.

c) Iran Crisis.

Crude oil crisis is far more than a domestic problem. Sri Lanka imports significant component of oil from Iran. I guess its over 90% of total imported to Sri Lanka. This is as a result of generous credit period offered by the Iran. Under the current crisis and impeding embargo's Sri Lanka will be compelled to purchase oil from alternative sources. Further if Iran proceed with its own embargo's then it is likely to that world crude oil prices will reach record high resulting in sever crisis across the world.

What is good to buy and what is not!!

Banks
I would buy Banks. Coz bank would be a beneficiary in an high interest rate environment due to higher interest spread. Commercial Bank, HNB, NDB and Sampath seems quite attractive.
Hotels
I would buy hotels coz as a result of Rupee devaluation Sri Lankan hotels would cheaper and more attractive to the foreigners. Rupee earnings of hotels are likely to increase resulting in higher corporate earnings.
Motor
I would sell out of Motor Trading Companies such as DIMO, United Motors, Sathota, Colonial etc coz high fuel cost and depreciation of the rupee will reduce the short to medium term demand for motor vehicles. High interest rates also will dicourage people from taking leases.
Plantations
Significant component of Sri Lanka's tea is exported to Iran, Syria and to other arab countries. Any benefit we are likely to derive from the devaluation of the rupee is going to be off set by the likely reduction in demand for tea from Iran, Syria and Middle Eastern Countries due anticipated crisis. So I will not touch tea. But natural rubber is likely to be high in demand as a result of the higher cost of artificial rubber due to expected increase of crude oil. Good luck for rubber plantation.

Above post is a personal opinion of the writer based on current local and global events purported to be affecting the Stock Market and should under no circumstances be considered as Research or Recommendation to buy or sell shares



Last edited by Quibit on Sat Feb 11, 2012 8:49 am; edited 1 time in total

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First real reaction to the impending crisis outlined in my post. What can we expect on Monday trading?

Oil prices will be revised from tonight but concessions will be given to pvt and public transport and fishery sectors- Govt info - adaderana.lk

Liter of petrol increased by Rs 12, diesel by Rs 31, Kerosene by Rs 35 with effect from midnight today- Ministry of Petroleum- adaderana.lk

fuel price hike will cause huge inflation.even 15% interest rate would not be enough .after some time money has no value.
best option may be property ,or property rich shares,

Post Sat Feb 11, 2012 10:13 pm by smallville

Greedy is right.. only 5 year deposits look promising at the moment.

What if you buy shares cheaper in this market? It will give u 100% return in 5 years as oppose to these FD rates..

Post Sat Feb 11, 2012 10:27 pm by sriranga

Fuel price hike will definitely lead the country to devaluation.
May be in month time.
No choice after CB stopped defending the Rupee.

avatar

Post Sat Feb 11, 2012 10:30 pm by rishanpossitive

Time to go to road. Twisted Evil Twisted Evil

@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

avatar

Post Sat Feb 11, 2012 10:48 pm by rishanpossitive

@Tiger wrote:
@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

No friend,For revolution.That's the only way market can go up.

@rishanpossitive wrote:
@Tiger wrote:
@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

No friend,For revolution.That's the only way market can go up.

Revolution in Srilanka Hahahahaha......
You are dreaming.
We need to have the guts for any action or reaction.

15% is only for senior persons, we can't get that. Am I correct ?

Further to Quibits 3 points the following point make much weight in the investments in Srilanka.
Please read the following news in dailymirror.lk



Police and political parties most corrupt, survey reveals
SATURDAY, 11 FEBRUARY 2012 18:09
According to a survey by Transparency International (TI) nearly 50% of Sri Lankans believed that the police and political parties in the country were the most corrupt institutions in the country.

In April 2011, 1000 people were interviewed from Sri Lanka and other countries in the South Asian including India, Nepal, Pakistan, Maldives and Bangladesh to determine the level of corruption in each country.

The survey showed that the people had the least amount of confidence in services provided by the police. The survey showed that there was a dire lack of confidence in the services provided by other government departments.

“Apart from the lack of confidence of the people in the police system, the survey also indicates that in Sri Lanka corruption was most prevalent in the Inland Revenue Department, Customs Department and land services such as divisional secretaries, kachcheries, pradeshiya saba, the Land Registrar’s Department and other such government services,” a TI Spokesman Shan Wijeytunge said.

This list was followed by the judiciary and education and health care services. Out of those who were interviewed 23% said they had to pay a bribe in order to obtain a particular service.

The overall results of the research in South Asia showed that corruption in government departments were highest in Bangladesh at 66% and the lowest in Maldives at 6%. (Olindhi Jayasundere)

Don't you feel shame?



Last edited by Kumar on Sat Feb 11, 2012 11:24 pm; edited 1 time in total

@rishanpossitive wrote:
@Tiger wrote:
@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

No friend,For revolution.That's the only way market can go up.

Ammo Brother I beg you. Please do NOT go for a picketing. It will make things worse. Sad

@Kumar wrote:
@rishanpossitive wrote:
@Tiger wrote:
@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

No friend,For revolution.That's the only way market can go up.

Revolution in Srilanka Hahahahaha......
You are dreaming.
We need to have the guts for any action or reaction.

Revolution? Truth of the matter is we are still a very poor country because of this revolutionists who emerged from time to time since 1948. Revolutions cannot create wealth only Education, Discipline and Hardwork can create wealth.

Anyway please explain "For revolution.That's the only way market can go up", this. I may be not seen what you mean. If certain revolutionary actions can send markets up I would certainly rally with you.

මාර්කට් එක වහාම උඩ යවපියව්. (support from me)

sriranga

Post Sat Feb 11, 2012 11:38 pm by sriranga

@Tiger wrote:
@Kumar wrote:
@rishanpossitive wrote:
@Tiger wrote:
@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

No friend,For revolution.That's the only way market can go up.

Revolution in Srilanka Hahahahaha......
You are dreaming.
We need to have the guts for any action or reaction.

Revolution? Truth of the matter is we are still a very poor country because of this revolutionists who emerged from time to time since 1948. Revolutions cannot create wealth only Education, Discipline and Hardwork can create wealth.

Anyway please explain "For revolution.That's the only way market can go up", this. I may be not seen what you mean. If certain revolutionary actions can send markets up I would certainly rally with you.

මාර්කට් එක වහාම උඩ යවපියව්. (support from me)


Revolutions cannot create wealth only Education, Discipline and Hardwork can create wealth.


1000 times agree with you.
Thanks.

rijayasooriya

Post Sat Feb 11, 2012 11:39 pm by rijayasooriya

කොහොම උනත් දැන් හැමෝටම වගේ කෙලවිලා තියෙන බව නම් පේනවා

In addition to the above, please read this article published in Sundaytimes 12-02-2012(tomorrow).

http://forum.srilankaequity.com/t15808-sri-lanka-newspapers-sunday-12-02-2012#103328


Why am I so pessimistic about Sri Lanka's Equity Market - Page 2 Epaper11

Sri Lanka's upscale business community has put a damper on any buoyancy in economic growth this year with a new poll expressing concern over the deteriorating local and international business climate in 2012.

According to a Business Outlook Survey 2012 issued by the Ceylon Chamber of Commerce (CCC) in January, the situation regarding two critical areas - decision to invest this year and the economic environment - worsened in December 2011 against July 2011 when the previous study was done.

Respondents were asked whether they will invest, will not invest or are undecided. In December, 62 % said they will invest, down from 74% in July; 15% said they will not invest up from 8% while 23% were undecided against 18% (July). Asked about the economic environment in Sri Lanka for the next 12 months, 63% of the respondents said there was no change against 43% in July while only 21% said there had been an improvement against 57% earlier.

The internal survey, a copy of which the Business Times received unofficially, was aimed at obtaining an independent assessment of the business environment and the challenges encountered by Sri Lankan corporates. It covered key business sectors in Sri Lanka from Agriculture, Industry and Services such as Agriculture, Agro Processing, Banking & Finance, Food & Beverages, IT & BPO, FMCG, Plantation, Retail, Travel & Tourism, etc and was addressed to the business leaders covering SMEs to MNCs.

The mood worsened after notorious expropriation laws were introduced. Respondents asked for their perception of these laws, voted "Not Favourable (73%), Favourable (4%) and No Impact (23%)". Then asked about reconsideration of the business/investment decision based on these laws, 33% said they will reconsider, 40% said NO while 27% were undecided. Another revealing statistic was the ranking given to most positive (factors) and most negative factors. While there was hardly any change (from July to December) in the most positive factors (on a 1-5 scorecard) and comprising peaceful environment, improved infrastructure, cost of finance, improved access to finance and more transparent and consistent, the most negative ranking saw 'Abrupt/adhoc changes to laws and regulations' move one notch up to 1st place from 2nd place in July.

On average consumer prices, 69% of the respondents said it will increase (33% in July) while 31% said there was no change against 67%, six months ago. On interest rates, 51% said no change (95% earlier) while 47% said it would increase (3% earlier). The survey quoted 58% of the respondents saying salaries and wages in industry will rise (56% earlier), while industry profits would decline (27% respondents vs 55% earlier). On global economic conditions for the next 12 months, 2% of the respondents said it would improve, down from 14%; 29% said it would decline (47%earlier) while 57% said no change (51% earlier).

Commenting on the results of this survey, top economist, Prof. Sirimal Abeyratne from the University of Colombo said, the results were interesting but not surprising. He said there was a gloomy global economic outlook with the Euro crisis no more a crisis in the Euro Zone, but in the global economy.
He said the business environment of Sri Lanka needs to be strengthened through a reform process, but in practice it appears to have got damaged.

"Although the government's main policy document - Mahinda Chintana - presents a beautiful economic vision and conceptualization about the medium-term achievements of the Sri Lankan economy, there has been a huge vacuum in the mission and action plan. In certain instances, in fact, we could observe policy reversals as well as ad hoc policy changes, sending negative signals to the business community.
The business community wishes to see the policy direction of the country and, consistency and predictability of the policy environment," he said. A few bankers and industrialists polled by the Business Times had this to say:

- In addition to the macro economic issues, policy reversal is also a problem.
- Sri Lanka should have depreciated its currency two years ago and now the situation has worsened as the government failed to keep to its promises in the IMF SBA deal (flexible exchange rate policy/break-even in CEB and CPC)
- The market understands the situation much better (than the government) and is aware that the interest rates and foreign exchange rates are artificial.
- Policy reversals: the pensions pull back, the crates issue reversal, private university bill withdrawal and the expropriation law issues have sent negative signals and conflicting signals. The country can't attract investment under this environment.
http://sundaytimes.lk/120212/BusinessTimes/bt01.html

avatar

Post Sun Feb 12, 2012 12:04 am by rishanpossitive

@Tiger wrote:
@Kumar wrote:
@rishanpossitive wrote:
@Tiger wrote:
@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

No friend,For revolution.That's the only way market can go up.

Revolution in Srilanka Hahahahaha......
You are dreaming.
We need to have the guts for any action or reaction.

Revolution? Truth of the matter is we are still a very poor country because of this revolutionists who emerged from time to time since 1948. Revolutions cannot create wealth only Education, Discipline and Hardwork can create wealth.

Anyway please explain "For revolution.That's the only way market can go up", this. I may be not seen what you mean. If certain revolutionary actions can send markets up I would certainly rally with you.

මාර්කට් එක වහාම උඩ යවපියව්. (support from me)

REVOLUTION TO KICK OUT _ _

@rishanpossitive wrote:
@Tiger wrote:
@Kumar wrote:
@rishanpossitive wrote:
@Tiger wrote:
@rishanpossitive wrote:Time to go to road. Twisted Evil Twisted Evil

To live? I suppose there would be many to follow you.

No friend,For revolution.That's the only way market can go up.

Revolution in Srilanka Hahahahaha......
You are dreaming.
We need to have the guts for any action or reaction.

Revolution? Truth of the matter is we are still a very poor country because of this revolutionists who emerged from time to time since 1948. Revolutions cannot create wealth only Education, Discipline and Hardwork can create wealth.

Anyway please explain "For revolution.That's the only way market can go up", this. I may be not seen what you mean. If certain revolutionary actions can send markets up I would certainly rally with you.

මාර්කට් එක වහාම උඩ යවපියව්. (support from me)

REVOLUTION TO KICK OUT _ _

Still dreaming is not prohibited in Sri Lanka no?

LateTackle

Post Mon Feb 13, 2012 9:13 pm by LateTackle

@smallville wrote:Greedy is right.. only 5 year deposits look promising at the moment.

What if you buy shares cheaper in this market? It will give u 100% return in 5 years as oppose to these FD rates..


If you buy at the correct time, I remember JKH at 60 and NDB at 70 your return will be more than 300% FD returns will never give you that type of return, if you want to make big money you have to wait for these blessings in diguise.

Every dark cloud has a silver lining. Idea Like a Star @ heaven

This is why I was so pessimistic about the Sri Lanka's Stock Market.
Look at the change.

A) Sri Lankan rupee already down to Rs 122
B) Interest rate is still on it's way up 12.5% offed by NTB for 3 months and 16% offered by Pan Asia for 5 year.
C) Petrol, Diesel and Kerosine have hit the roof to be followed by LPG.
D) electricity tariff up 40% and bus fares up considerably.
E) ASI reached below 5,000 during trading.
F) inflation doom to be double digit

What's is next!!!
Higher corporate And income tax?

LOLC Securities Research Report suggested banks as a good buy and the other good news is speculative shares going down but foreigners are collecting fundamentally strong blue chip companies, investing 50 on FD's and 50 on bank shares seems good option but finding the bottom of the market seems not easy

Oil's rise puts sanctions under spotlight

By John Kemp
LONDON | Tue Feb 28, 2012 8:11pm IST
(Reuters) - U.S. and EU sanctions on Iran's crude oil exports and its central bank were not supposed to affect either the volume of oil available or its price, provided markets reacted "rationally".

That was the conclusion of an influential report on the "Oil Market Impact of Sanctions Against the Central Bank of Iran", circulated by sanctions advocates at the Foundation for Defense of Democracies in Washington.

The idea that sanctions could reduce Iran's oil revenues without boosting prices for oil-consuming countries was crucial to persuading policymakers in the United States and Europe to impose far-reaching restrictions on Iran's oil sector.

But the policy has backfired. Oil prices have surged, harming consuming countries and offsetting the impact of lower exports on Iran's revenues.

MARKET MANAGEMENT

U.S. and EU sanctions were written very carefully to include plenty of flexibility to ensure they would not risk a spike in prices.

U.S. sanctions, set out in Section 1245 of the National Defense Authorisation Act for Fiscal 2012 (HR 1540), apply only if the president determines "the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient to permit purchasers .. to reduce significantly in volume their purchases from Iran".

Sanctions do not apply if the president determines an importer has "significantly reduced" its volume of crude purchases from Iran, and the president can waive them altogether if it is in the national interest.

The law mandates experts at the Energy Information Administration (EIA), in conjunction with the departments of Treasury and State and the head of the intelligence community, to review the availability of alternative supplies every 60 days. The first review is scheduled to be delivered to the U.S. Congress this week.

For supporters, the game plan was (1) to divert Iranian crude away from developed markets in Europe and Asia to developing countries; (2) grant emerging markets a pass provided they cut imports or negotiate steep discounts for Iranian oil; (3) line up alternative sources of supply by extracting promises from Saudi Arabia to boost exports; and (4) maximise publicity for all these arrangements to ensure oil markets did not bid up prices on supply concerns.

UNINTENDED INTERACTIONS

It has not worked. Brent oil prices have risen around $25 per barrel, or 25 percent, since sanctions momentum first started to build in earnest in late October/early November, and almost $18 since they were signed into law.

The steeply backwardated structured of futures markets suggests there are concerns about the availability of alternative supplies, despite Saudi offers of extra barrels. Hedge funds and other money managers have boosted long exposure to crude futures and options by more than 80 million barrels since the start of November and by more than 65 million since the start of the year.

Two things have gone wrong. First, sanctions are interacting with other supply disruptions (in South Sudan, Yemen, Syria) to reduce supplies and exhaust the cushion of spare capacity Saudi Arabia holds.

Second, the thicket of sanctions on Iran imposed by the European Union and United States is now so complex it is becoming hard to conduct trade that is supposed to be permitted.

A provision for permitting countries to continue buying Iranian oil provided they reduce the volumes or secure a U.S. presidential waiver is not much help if cargo and shipping insurance is not available because of other sanctions restrictions.

Sanctions strategy rested on the concept of permitted non-compliance and selective prosecution by the United States of countries and refineries that continued to purchase Iranian crude. But the sheer level of arbitrariness makes normal commercial activity almost impossible. Importers fear their waivers and permitted non-compliance could be removed at any time.

The result is that many emerging markets have not taken up the extra Iranian barrels no longer being delivered to Europe, and most are scrambling to cut their reliance on Iranian imports.

SELF-INFLICTED WOUND

Sanctions cannot be blamed for the entire increase in oil prices. Other stoppages, sabre-rattling by Israel and Iran, an improving U.S. economic outlook and another bout of massive monetary stimulus from global central banks have all helped push up prices.

Sanctions supporters argue that Iran's nuclear programme required some response and that sanctions were the least bad option. Military confrontation would have generated an even bigger rise in prices and more uncertainty and damage for the global economy.

But sanctions (especially those legislated by the U.S. Congress) are a notoriously blunt instrument with a questionable track record. In this case, the potential for sanctions to backfire, imposing significant costs on consuming countries, was well understood by outside observers as well as many energy experts within the U.S. administration and European governments.

Unfortunately, the political momentum for sanctions outstripped a proper analysis of the likely impact. In November and December, both the United States and the EU found themselves publicly and politically committed to a sanctions strategy before the detailed technical work had been done to assess the likely impact on Iran's revenues and oil prices.

By the time foreign policy officials began reaching out to colleagues in energy ministries as well as experts in the industry and at the International Energy Agency at a series of meetings late last year and in January, the momentum for sanctions had already become unstoppable.

REFINING THE STRATEGY

Oil sanctions are a classic example of poor policymaking under pressure from outside influences with insufficient attention being paid to detail and seeking expert input. The consequence is visible in the sharp rise in the cost of gasoline and diesel hitting consumers and businesses across North America and Western Europe.

It is likely sanctions policy will be refined in the coming months to soften the impact on consumers as well as reverse the rise in oil prices, which is currently benefiting rather than hurting Iran.

Neither the United States nor the EU is likely to lift sanctions, unless and until there is significant progress in engaging with Iran, which at the moment seems a relatively distant prospect. But there are less visible steps that could be used to adjust their impact.

The EIA's first 60-day assessment of alternative supplies will provide an opportunity to examine how sanctions are interacting with other disruptions and whether Saudi Arabia is managing to plug the gap.

In another 30 days, the president will make the first determination of which countries are significantly reducing the volume of their imports. Waivers and non-applicability decisions will allow the White House to start demonstrating some flexibility in an attempt to reassure markets.

Intense diplomatic pressure will be applied to Sudan and South Sudan to resolve their dispute over transit fees.

Western policymakers may also step up the pressure on Saudi Arabia to increase its exports and go public about how much extra oil is flowing. There is also likely to be an effort to reassure Asian refiners in China, India and certain other markets they will not be penalised for continuing to take Iranian crude, especially if they secure discounts.

Finally there is likely to be a renewed push to explain the impact of sanctions to financial investors in a bid to get the market to view them in a way that policymakers see as more rational.

Whether all this will be enough to avert a further damaging rise in prices is unclear. But having set the process in train, the onus is on foreign policy officials and sanctions supporters to show the consequences can be controlled.

(editing by Jane Baird)

[quote="Quibit"]I have listed below the reasons why I am so pessimistic about the current investment opportunities in the Colombo Stock Market.

b) Sri Lankan Rupee devaluation

You hear every where, that Sri Lankan Rupees is likely to be devalued soon!!. Some say its 5% others say its by 20%. This apparently to reduce the pressure on Sri Lanka's Foreign currency reserves and resultant high interest rates. Whatever is the case, this is likely to have sever impact to the economy. Can devaluation of the rupee could solve the current crisis. To me, answer is no !!! Sri Lanka is a import driven economy and any devaluation in of the rupee is likely to have a significant impact on inflation (The Cost Push Inflation) and intern the cost of production and services of all companies and industries. Among our imports Crude oil remain one of the biggest import cost to the country and any notable increase is likely to have a significant impact to all sectors of the country including high depended Transport, Electricity, manufacturing sectors.

Quibit Just to clarify:
If you think that devaluation of rupee is not the answer, what is your the suggestion to balance of payment issue? Borrow more $?

2012 is going to moderately Green for CSE.

It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

@Quibit wrote:I have listed below the reasons why I am so pessimistic about the current investment opportunities in the Colombo Stock Market.

a) Interest rates are on its way up.

From as low as 7% p.a interest rate few months ago the rates are spiraling upward with each bank competing with the one another to attract deposits. Few weeks ago I noticed one of the leading listed commercial bank (Nation Trust Bank) offering 12% p.a for 6-12 months deposits via email campaign few days later be out done by Pan Asia Bank with a offer of 15% p.a for 5 year deposits. With this trend 20% p.a is not impossible!!

As a depositor I am delighted to see this kind of increase in interest rates, which will make my money work for me without my having to work at all. If interest rates are going to be above 15%p.a it may not be a bad idea for me to sell all my business including stock market investment and deposit everything in a fixed deposit. Tell me any business that could guarantee you 15% Net Profit per annum without any risk!! Wow is going to be wonderful!!

Although I am delighted personally the impact of interest rates to the economy is likely to be horrendous. High interest rates will drive away the investors from stock market towards debt market, drying the opportunities that prevailed in the capital market for companies to raise low cost equity funding for their operations and future expansions. Alternatively companies will now have to resort to borrowed capital which will significantly reduce the future profitability and corporate earnings. This will further have a significant impact on the stock valuations and market capitalization. Will stock market slump further!! ASI 4000??... only time will tell us.

b) Sri Lankan Rupee devaluation

You hear every where, that Sri Lankan Rupees is likely to be devalued soon!!. Some say its 5% others say its by 20%. This apparently to reduce the pressure on Sri Lanka's Foreign currency reserves and resultant high interest rates. Whatever is the case, this is likely to have sever impact to the economy. Can devaluation of the rupee could solve the current crisis. To me, answer is no !!! Sri Lanka is a import driven economy and any devaluation in of the rupee is likely to have a significant impact on inflation (The Cost Push Inflation) and intern the cost of production and services of all companies and industries. Among our imports Crude oil remain one of the biggest import cost to the country and any notable increase is likely to have a significant impact to all sectors of the country including high depended Transport, Electricity, manufacturing sectors.

c) Iran Crisis.

Crude oil crisis is far more than a domestic problem. Sri Lanka imports significant component of oil from Iran. I guess its over 90% of total imported to Sri Lanka. This is as a result of generous credit period offered by the Iran. Under the current crisis and impeding embargo's Sri Lanka will be compelled to purchase oil from alternative sources. Further if Iran proceed with its own embargo's then it is likely to that world crude oil prices will reach record high resulting in sever crisis across the world.

What is good to buy and what is not!!

Banks
I would buy Banks. Coz bank would be a beneficiary in an high interest rate environment due to higher interest spread. Commercial Bank, HNB, NDB and Sampath seems quite attractive.
Hotels
I would buy hotels coz as a result of Rupee devaluation Sri Lankan hotels would cheaper and more attractive to the foreigners. Rupee earnings of hotels are likely to increase resulting in higher corporate earnings.
Motor
I would sell out of Motor Trading Companies such as DIMO, United Motors, Sathota, Colonial etc coz high fuel cost and depreciation of the rupee will reduce the short to medium term demand for motor vehicles. High interest rates also will dicourage people from taking leases.
Plantations
Significant component of Sri Lanka's tea is exported to Iran, Syria and to other arab countries. Any benefit we are likely to derive from the devaluation of the rupee is going to be off set by the likely reduction in demand for tea from Iran, Syria and Middle Eastern Countries due anticipated crisis. So I will not touch tea. But natural rubber is likely to be high in demand as a result of the higher cost of artificial rubber due to expected increase of crude oil. Good luck for rubber plantation.

Above post is a personal opinion of the writer based on current local and global events purported to be affecting the Stock Market and should under no circumstances be considered as Research or Recommendation to buy or sell shares



Last edited by GMNet on Sun Jun 10, 2012 4:00 pm; edited 2 times in total

GMNet wrote:It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

I do agree with Quibit.

GMNet wrote:It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

Thanks Quibit.Can't we move this to expert chamber?

@Redbulls wrote:
GMNet wrote:It is always nice to go back in time to read some of the old posts and analysis. It would put your thought and future analysis in the right perspective. I particularly like this post made by Quibit.

4 months later it still hold some truth!

Thanks Quibit.Can't we move this to expert chamber?
Trend started reversing, Crude oil prices dropping drastically, reaching 2 year low.I'm sure CPC is enjoying huge profits and will deleverage reducing huge public debt. Private sector credit in month of May fallen drastically to 18 billion from 55 billion rupees previous month,which is 17 month low. This will reduce the pressure on rupee and will stabilized or can even strengthen. We will see interest rates heading south sooner than later as demand for credit is diminishing . We saw some treasury bill yields are falling. How ever if we deposit now in longer term deposits, we can get good return over the next five years as suggested by Quibit.
Would like to hear others opinion as well

Why did the oil prices come down? Less demand? Less energy consumption? Not much happening in the economies around the world?

Why did interest rates stagnate? People would happily grab even low interest rate to save their money? Lenders don't have to give high interest to attract the people because they're already coming?

Interest rates are still moving up! CBSL might revise policy rates!
Banks are getting ready for the next wave!
DFCC Vardhana is offering 14% for 6 months
NDB is offering 14% p.a for 1 year.
NTB is offering 14.5% p.a for 1 Year.
HSBC is offering 19% p.a for 5 Year deposits!!

Are we on top of the interest rate curve???
Is it a good idea to sell the residue stocks and deposit money in these high yielding deposits?

GMNet wrote:Interest rates are still moving up! CBSL might revise policy rates!
Banks are getting ready for the next wave!
DFCC Vardhana is offering 14% for 6 months
NDB is offering 14% p.a for 1 year.
NTB is offering 14.5% p.a for 1 Year.
HSBC is offering 19% p.a for 5 Year deposits!!

Are we on top of the interest rate curve???
Is it a good idea to sell the residue stocks and deposit money in these high yielding deposits?
Consider the inflation rate before committing to any investment.

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