Twin policies of interest rate cut especially and lifting of credit ceiling on banks yesterday boosted investor sentiment on equities, with market capitalisation rising by Rs. 38 billion.
The benchmark ASI shot up by 99 points (1.8%) after having peaked to a high gain of 106 points and MPI by 98 points (2%) whilst the S&P SL 20 index rose by 31 points (1%) on the back of investors re-rating the CSE’s upturn following the Central Bank cutting policy rates by 25 basis points as well as lifting the 18% growth ceiling on credit from end of this month. The only concern was the relatively low turnover of Rs. 457 million, but analysts expect investors, especially retailers, to return on the strength of policy stimulus.
The market, which has been basking in the glory of record Rs. 37 billion in net foreign inflow so far, saw a marginal Rs. 37 million net selling yesterday.
The rate cut signalled the Government’s intention to gradually brace for a low interest rate regime from now onwards, lifting the spirits of the equity market. The rising interest rate scenario was a damper for the Colombo Bourse, down by 11% until the rebound since Monday, as fixed income options were more attractive for investors.
“With the possibility of a falling interest rate coupled with likely improvements in corporate earnings in the medium to long term, we recommend investors to focus on fundamentally-sound counters which are trading at attractive valuations,” Asia Wealth Management said yesterday.
Lanka Securities said Colombo Bourse trades at a price earnings ratio (PER) of 11.9x, below the MSCI emerging markets PER of 12.6x and MSCI frontier emerging market PER of 13.4x, suggesting more room for price increase.
“The market RSI has increased to 56, still below the overbought level of 70. The technical indicators point towards the possibility of sustaining the positive momentum seen in the last few days,” Lanka Securities said, adding, “The cash map (excluding crossings) advanced to 58% yesterday, reflecting the upbeat momentum of the local investors.”
DNH Financial, however, sounded cautious. “Although the interest rate cut is encouraging, we do not believe that this is likely to shift significant funds into the equities market at least in the short term, given the relative dichotomy between interest rates and the Sri Lankan Bourse,” it said.
“With regard to the market trajectory, the Bourse is likely to continue to trade range bound in the short-term, although we may see increased foreign and institutional activity in the medium-term, given that valuation multiples for select companies have become highly appealing,” DNH Financial added.
Yesterday block trades in Hatton National Bank for the second consecutive day and Nestlé helped to boost turnover levels. Retail interest was evident in SMB Leasing, Amana Takaful, and Free Lanka Capital Holdings, according to NDB Stockbrokers.
Lanka Securities said the highest contribution for the turnover came from HNB (Rs. 88.1 million), Nestle (Rs. 49.6 million) and John Keells Holdings (Rs. 44.6 million).
Softlogic Stockbrokers said banking cluster players gathered focus following Central Bank moves. Interest in Hatton National Bank persisted as the counter encountered a further two blocks constituting 467,000 shares, which changed hands at Rs. 140 (-0.7%), after which its price touched an intra-day high of Rs. 143 (+1.4%) before closing with a marginal dip at Rs. 140.7.
Commercial Bank and National Development Bank witnessed some on-board interest as each counter advanced 2% and 0.8% at their respective peak levels before closing with gains of 1.6% and 0.08% at Rs. 101.6 and Rs. 132.
Nestlé Lanka, which witnessed an intra-day high of Rs. 1,506, highlighted the crossings board with a block of 15,000 shares at a 52-week high price of Rs. 1,500 during mid-trading hours. Interest stayed in People’s Leasing and Finance Company, with its attractive dividend yield of 8.1%. The counter saw several on-board blocks between price levels of Rs. 12.5-13 before it closed with a dip of 2.2% at Rs. 13.
John Keells Holdings was noted in the top turnover slot with majority of interest weighing on the buying side.
The counter witnessed a transaction of 78,000 shares at its intra-day low level of Rs. 211.8, followed by which its price shot up to Rs. 215 (+1.5%).
S&P calibre players, Ceylon Tobacco (+0.04%), Distilleries (+1.72%) and Chevron Lubricants (+1.75%), too saw some interest, while the latter two counters gained 1.7% and 1.8% at their peaks of Rs. 154.1 and Rs. 198.