Stocks rose on Thursday to a near 11-month closing high as foreign inflows and a lower interest rate regime helped boost sentiment, but the lack of credit growth has raised concerns over earnings of listed companies, stockbrokers said.
The main stock index rose 0.37%, or 23.13 points, to 6,275.73, its highest close since 11 June. The day’s gain boosted the market capitalisation by Rs. 9.69 billion to Rs. 2.63 trillion ($ 20.14 billion), led by large caps.
“We see retail investors coming into the market due to the current lower interest rates and activating their inactive accounts,” a stockbroker said on condition of anonymity.
“But lower credit growth has raised questions over growth and earnings. Still the consumer spending is low and that is why we don’t see companies borrowing and expanding.”
Some traders are speculating about another reduction in the Central Bank’s key interest rates if credit growth remains sluggish.
Rupee gains to over 6-month high after State bank reduces bid
Reuters: The rupee ended firmer on Thursday at its highest level in more than six months after a State bank reduced its dollar buying bid as the local currency faced upward pressure in the absence of credit demand and imports.
The rupee closed at 130.50/52 per dollar, its highest close since 24 October and firmer from Wednesday’s close of 130.60/61.
Dealers said one of the two State banks, through which the Central Bank usually intervenes in the market, stopped buying the US currency at 130.60 and allowed the market forces to determine the rupee.
“But later the same bank started to buy dollars at 130.50, directing the market. The rupee is following most of the other currencies, which appreciated against the US dollar today,” said a currency dealer asking not to be named.
Many dealers said the rupee will be under upward pressure until lower credit growth and imports reverse their trend.
Despite a multi-year low interest rate regime, latest data showed private sector credit grew 4.4% in February from a year earlier, the slowest expansion since May 2010, while imports in February fell 6.2% on year.
Dealers said lack of credit expansion and a contraction in imports could hit economic growth unless the Government props up expansion through infrastructure funding.
The Central Bank, in its monetary policy statement last month, however, expressed confidence that private sector credit growth would rebound in the second quarter and push up the pace of economic expansion.
The currency has been hovering between 130.55 and 130.70 since 3 March, Thomson Reuters data showed, with the Central Bank intervening to smoothen any sharp volatility.
Despite a multi-year low interest rate regime, private sector credit grew 4.4% in February from a year earlier, the slowest expansion since May 2010. That compared with growth of 5.2% in January and 13.3% in February 2013.
The day’s turnover was Rs. 935.2 million ($ 7.16 million), less than this year’s daily average of Rs. 968.9 million.
Foreign investors were net buyers of Rs. 137.8 million worth of stocks on Thursday, but they have been net sellers worth Rs. 6.8 billion so far this year.
Shares of Nestle Lanka PLC rose 2.32% to Rs. 1,985, while Bukit Darah PLC rose 2.8% to Rs. 629.80.
The market gained 4.28% in April as some retail investors started buying risky assets across the board as the Central Bank kept policy rates steady at multi-year lows for the third straight month.