Sri Lanka stock index plunges to over 4-month low after rupee devaluation

The (ASPI), fell 359.31 points to close at 10,163.72, its lowest close since November 1. The index has already lost over 9.6 percent in the last three session.Analysts have said that devaluing the rupees to 230 is not sufficient as it doesn’t reflect the actual valuations while macro concerns weighed in.

“Investors are completely in a disarray because of the uncertainties. Nobody has factored in where the inflation is going to end up after devaluation and if the central bank can control it with interest rate hike,” a market analyst said.

“If the rupee goes down to 270 rupees against US dollar, then inflation could go well beyond 20 percent. This will trickle down cost of production and hit the earnings.”

On Wednesday, the rupee was quoted 240/255 per dollar though there was no trading as banks were waiting for some clear directions from the central bank, dealers said.

Rising oil price, policy rate hike, a slowing economy, and shortage of dollars, fuel, and cooking gas along with extended power cuts also weighed on the sentiment.The high oil price has hit Sri Lanka’s economic growth in the past and the manufacturing sector is affected hard and company earnings fall due to high cost of production and lower consumption due to high energy cost.

On Friday (04) Sri Lanka’s central bank raised the key monetary policy interest rates by 100 basis points to more than a two-year high in a bid to reduce pressure on the currency that was created by excess money printing while keeping the interest rates at a low level to spur pandemic-hit economic growth.

In March, the market has already lost 12.2 percent after falling 11 percent in the previous month.

Overall the market has lost 16.9 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year.

S&P SL20 of the most liquid stocks is also down 4.25 percent or 152.58 points to 3,434.35 points.

The market turnover was 2.5 billion rupees, around half of this year’s average turnover of 5.9 billion rupees.

Foreign investors, who had been worried about possible sharp depreciation or devaluation in the currency, bucked the trend to buy 67.6 million rupee worth shares. The foreign sales so far this year have been 2.7 billion rupees.

In 2021, the Sri Lanka stock market suffered a net foreign outflow of 50 billion rupees.

Analysts predict, the downward trend to continue until investors see some strong and sustainable steps to address the economic and foreign debt crisis.

LOLC Holdings, Expolanka, and Commercial Bank dragged the main index on Wednesday.

LOLC Holdings slipped 8.9 percent to close at 795.75 rupees a share, while Expolanka Holdings, the market heavyweight lost 7.1 percent to close at 240.25 rupees a share, market data showed.

Commercial Bank of Sri Lanka closed 2.3 percent down at 77.50 rupees a share. (Colombo/March09/2022)