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Growth to pick up with easing of political uncertainty

Daily Mirror | 04.10.2019

Stock Brokers in Sri Lanka

First Capital Research (FCR), a Colombo-based equities research house, expects Sri Lanka’s economic growth to pick up to 4.1 percent next year with possible easing of political uncertainty following the Presidential Election scheduled for next month.
However, FCR estimates economic growth, impacted by the Easter Sunday attacks, to hit an 18-year low this year to 2.2 percent.
“With the elections in 4Q2019, the pickup in consumer demand may continue in 1H2020 in an accelerated manner boosting GDP growth and consumer credit. We expect a significant recovery in GDP growth supported by the lower interest rate environment,” FCR Head of Research, Dimantha Mathew said.
He made these forecasts based on FCR’s Mid-Year Outlook 2019 themed ‘Fundamentals Strong; But Decisive Political Juncture’ at an event held in Colombo this week.
According to FCR’s Mid-Year Outlook 2019, economic activities will begin to improve from the fourth quarter of this year driven by election-related spending and Central Bank’s loose monetary policy stance.
Mathew projected that private sector credit growth this year would decelerate to 5 percent year-on-year (YoY) while noting that credit is unlikely to pick up until the second half of next year despite the imposed lending rate caps on banks, particularly given the lower liquidity position in the market.
“However, we expect the liquidity position to improve towards 1Q2020 amid possible inflows. Thereby, we expect it to lead to a decline in rates and rise in private sector credit growth. We expect 2020 credit growth to improve to 14 percent YoY.”
On the political front, First Capital Research forecasts a new Prime Minister to be appointed following the Presidential Election and Parliamentary Election to be held in March next year, resolving the current political uncertainty.
“We believe, immediately following the Presidential Election, a new Prime Minister will be appointed. Though remote, there is a possibility for it depending on the developments. The Parliament could be dissolved by February 17 giving leeway to hold Parliamentary Election by March 2020. “The completion of the election cycle is most likely to resolve the political uncertainty in the local front,” on FCR’s Mid-Year Outlook stated.
Mathew pointed out that the outcome of the Parliamentary Election is likely to deliver a hung parliament.

“Though a multi-party government usually leads to slow decision making, we are most likely to see the president, government and provincial councils controlled by a single party or a single party together with minority parties, which may provide some stability,” he said.
As the economy picks towards 4Q2020, FCR expects to witness a possible weakness in currency, which may be counterbalanced by possible inflows
in the 1Q2020.
Mathew noted that the exchange rate is likely to record a moderate depreciation reaching Rs.183-188 against the US dollar by June 2020.
Meanwhile, commenting on the capital market, Mathew pointed out that since one-year fixed deposit interest rates offered by banking sector declined to 9.83 percent in July, ASPI rose by over 600 points by August.
FCR expects Colombo Stock Exchange’s (CSE) All Share Price Index (ASPI) to reach 6,000 by end-2019 and 6,500 by June 2020.
“The ASPI, we believe has recovered to a ‘disbelief stage’ from ‘depression stage’ following the decline in interest rates. Decline in interest rates is likely record heavy dip in finance costs for most companies while possible rise in consumer demand and credit growth may grow earnings of bulk of listed companies.  “We expect the market to adopt an upward trajectory over the next 12 months as we expect the ASPI to reach the next stages of the market cycle, the ‘hope’ stage and the ‘optimism’ stage,” Mathew elaborated.
First Capital also expects significant rise in foreign direct investment (FDI) inflows next year with anticipated investments to Colombo Port City and Hambantota Port, particularly from China.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research deliver heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.

 

Mid-Year Economic Outlook

Fundamentals Strong; But Decisive Political Juncture

First Capital Research – Sep 2019


Photo Caption – Dimantha Mathew, Head of Research First Capital, Dr. Nishan de Mel, Executive Director Verité / Director First Capital and Dilshan Wirasekara Director / CEO First Capital during the panel discussion.

RECAP OF RECOMMENDATIONS OF JAN 2019

Jan ’19 Bond Market Expectation – Bond Rates to peak in 1Q2019 and gradually ease;    

Recommendation: Accuracy Maintained

Proving the accuracy of our recommendation, yields dipped sharply in Mar 2019 with the raising of the USD 2.4Bn Sovereign Bond which boosted reserves. Lower credit growth and soft consumer demand aggravated by Easter Sunday attacks significantly improved liquidity supporting a further decline in yields.

Further, in line with our expectations a 50bps policy rate cut was provided in May 2019, while a further 50bps cut was provided Aug 2019 slightly earlier than expected. In addition a further USD 2.0Bn was raised in Jun 2019. With the significant improvement of economic health, we revised our yields expectations downwards by 100bps (50bps each in May and Jun 2019).

Jan ’19 Real Interest Rates – Real Interest rates to dip by 300bps to 5% by 4Q2019 with higher inflation and lower yields

Recommendation: Accuracy Maintained

In line with our expectations real interest rates saw a steep dip of 300bps. However, we expected a rise in inflation which did not materialize with the depressed economic situation following the Easter Sunday attacks. Real Interest rate of 5% target was achieved by yields significantly falling over the targeted period with improved economic indicators.

Jan ’19 Real Interest Rates – Banking Rates (AWPR) to be volatile within a 100bps band but dip to c.11% towards 4Q

Recommendation: Accuracy Maintained

In line with our expectations AWPR has continued to move in line with the 5 Yr Bond and has reached our targeted 11.0%.

With the bond yield further dipping, AWPR is currently further trending downwards.

Jan ’19 Exchange Rates – Exchange Rate 2019 target of LKR 194.0 and upgraded to LKR 180.0

Recommendation: Accuracy to be decided

We had a bearish target for 2019 with analyst expectations for a stronger Dollar. However, the environment in the global and local context reverted weakening the Dollar while the improved macro environment in Sri Lanka supported a stronger rupee leading to a steep appreciation during 1Q2019.

We’ve upgraded our outlook in Jul 2019 providing a base case target of LKR 180.0. Currency may move towards our bearish target of LKR183:1USD amidst the current foreign outflows.

 

–MID YEAR OUTLOOK FOR 2019-20–

EXPECTATION OF EASING UNCERTAINTY POST ELECTIONS: POSITIVE

Possible easing of Political Uncertainty: New faces have emerged as candidates for Presidential Elections which is likely to be held on the 16th Nov while the new President may take oath on the 17th Nov 2019. We believe immediately following the Presidential Election a new Prime Minister being appointed, though remote, may be a possibility depending on the developments. The Parliament could be dissolved by 17th Feb 2020 giving leeway to hold Parliamentary elections by Mar 2020. 2Q2020 is mostly likely to provide the opportunity to hold PC Council elections which will complete the election cycle for the next 5 years. The completion of the election cycle is most probably likely to resolve political uncertainty in the local front.

Most probably a Hung Parliament: With the current electoral system, no single party is likely to obtain majority to form a Government. In the history a majority Government has been formed by a single party only on a couple of rare occasions where there has been extreme popularity. In such a situation, similar to previous occasions we are most likely to see multiple political parties getting together to form a Government. Though multi-party government usually leads to slow decision making. We are most likely to see President, Government and Provincial Councils controlled by a single party or single party together with minority parties which may provide some stability.

ELECTIONS MAY REVIVE ECONOMIC ACTIVITY: NEUTRAL

GDP growth to pick towards 4Q2019: With CBSL continuing to adopt loose monetary policy stance, we expect improvement in economic activity and GDP growth towards 4Q2019. Election during 4Q2019 is likely to provide an added boost to the economy amidst island wide election campaigning.

1H2020 growth to show strong recovery: With the election in 4Q2019 the pick in consumer demand may continue in the 1H2020 in an accelerated manner boosting GDP growth and consumer credit. We expect a significant recovery in GDP growth supported by the lower interest rate environment.

Strong foreign reserve position to bring in stability: Following the successful Sovereign Bond issuance in Jun 2019, SL’s foreign reserves soared over USD 8.0Bn. Sri Lanka’s imports have also collapsed over the last 6-8 months amidst the slowdown in the economy and tax revisions on selected consumer items that affected imports. Thereby, the current minimum threshold of 4 months of Foreign Reserves dropped to c.USD 6.5Bn from c.USD 8.0Bn 1 year ago. Central Bank has also announced the raising of USD 500Mn via a Samurai Bond ahead of the election in order to support next year’s foreign repayments.

Foreign Repayments cover jumps to 2.1x with Year End reserves estimated at USD 8.0Bn: We believe foreign reserves are at a comfortable stage with the foreign repayment cover improving to 2.1x for the 12 months (Jul’19 to Jun’20) suggesting the lowest foreign currency requirement in recent years. The new Samurai Bond issue adds a further cushion to foreign reserves, as we expect reserves to be c.USD 8.0Bn towards 2019 year end while maintaining above USD 7.0Bn by end of 1H2020.


Bond Payments start to decline in 2019E & 2020E

Bond repayments dip amidst the lower SLDBs and lack of Sovereign payments: The next 12 months upto Jun 2020 illustrates a notable reduction in repayments especially in 4Q2019 and 1Q2020. However, we expect foreign payments in the range of USD 300-400Mn to exist on a monthly basis in the form of project loan repayments.

Total Debt payment for 2020 is at LKR 2.4Tn with rollovers from the rest of the year 2019: Debt to GDP as at 2018 was 83% whereas we expect it to rise to 85% in 2019 while dipping from 2020 onwards partly with the acceleration of GDP growth, comparatively lower debt repayments and possible large FDIs led by the investments into Port City.

Sri Lanka’s Current Debt Payments are as follows:


Foreign selling & Reduction in CBSL Gov. Sec. Holdings prompts liquidity shortage, but may gradually improve towards 1Q2020

Reversal of foreign flows and elections may improve liquidity during early 2020: With the continuous foreign selling in the market and CBSL reducing CBSL Holdings, we believe that maintaining positive liquidity is likely to be a struggle during early 4Q2019. We believe the global trade war, political uncertainty, policy rate cut already given and Government borrowing requirement to fund the budget deficit expansion amidst the shortage in revenue may lead to liquidity in the market to be negative. Thereby lending rates are likely to remain high resulting in lower credit demand. Following the Presidential Election towards 1Q2020, with the settling of the political uncertainty to a certain extent, we expect foreign inflow into our debt market while the elections in the 4Q2019 may also improve liquidity supported by the rise in economic activity and growth.

Private Sector Credit may remain low for the rest of 2019, but may pickup           with liquidity in 1Q2020 supported by possible inflows

2019 credit growth at 5%YoY: Amidst the negative liquidity situation we expect a possible delay in the decline in lending rates resulting in low credit growth during the 2H2019 as well. Despite Central Bank cutting policy rates by 50bps in Aug 2019, the lower liquidity position in the market may hamper decline in rates and boosting of credit.

2020 credit rise back to moderate level: However, we expect liquidity position to improve towards 1Q2020 amidst possible inflows. Thereby, we expect it to lead to a decline in rates and rise in Private Sector Credit growth. We expect 2020 credit growth improve to 14%YoY.

Inflation is expected to stay within the targeted range of the CBSL with no real spikes: The heavy depreciation of the rupee during 2018, is unlikely to be a major threat to inflation resulting from crash in the consumer demand. Consumer demand saw signs of picking up early in 2019, but immediately following the Easter Sunday attacks again plunged to all time low levels supporting lower inflation levels which is likely to benefit during the 2H2019. We have downgraded our inflation targets for 2H2019, but still show signs of a slow uptrend due to the currency impact in the comparative month. We do not expect any major threat to inflation during the 1H2020 as well, with inflation likely to hover in the range of 4.0%-5.0%

EXTERNAL ENVIRONMENT BECOMES VULNERABLE: NEUTRAL

Foreign outflows may weaken currency, globally low interest rate environment favourable: World Bank expects that Global Growth may weaken to 2.6% in 2019 while they also note that substantial risks are seen. World Bank expects Emerging and developing economy growth to be constrained by sluggish investment, and risks are expected to be tilted towards the downside. Further, the trade war between the US and China has created an uncertain environment in the world with it starting to impact both economies. The environment has created uncertainty among investors as investors move back to the safe heaven either the US Dollar or Gold creating foreign outflows from countries like Sri Lanka which may be considered risky. Fed rate cut in the US is identified as just an adjustment in its tightening cycle. However, this has delayed any further hikes until economic indicators signal otherwise.

Possible inflows once political uncertainty settles: Continuous foreign selling in SL capital markets has shown signs of a weak currency. Despite the negative impact, significantly low level of foreign holdings reduces risk of outflows. Further, local buying has been strong, backed by significant improvement in macroeconomic outlook and easing of global interest rates across most frontier markets amidst Fed rate cut and lower US rates. With the political outlook likely to improve post elections, we expect a reversal in trend leading to potential inflows.

Overall impact is Neutral: Political environment is likely to be stable possibly providing policy stability. Despite the slower outlook on the economic front there is room for a certain amount of acceleration coupled with possible support from the external front with foreign inflows which makes the overall impact at a Neutral stage.

 

FIRST CAPITAL RECOMMENDATIONS

Bond Market: Bearish 2Q2020 onwards

Bond Yields to be low and gradually trend up from 2Q2020 onwards: With the strong macro fundamentals, possible foreign inflows and low credit growth, we expect yields to trend downwards touching lower bands towards the 1Q2020. Despite a positive period in 1Q2020, during 2Q, we expect a gradual rise in bond yields towards our targeted upper bands, supported by the possible rise in consumer demand and credit, coupled with the anticipated rise in debt repayment towards 3Q2020.


Banking Rates: 9.5%-10.5% over next 12 months

Banking Rates (AWPR) to dip below c.10.0% towards 4Q and range within 9.5%-10.5% over next 12 months: Banking Rates are usually reflective of the bond rates with a 6-month lag. AWPLR usually had a 6-month lag effect with the 5-year bond. However, more recently, (as it illustrated in the graph) the banking rates have become more responsive to market interest rates while also having an impact due to the increased capital adequacy issues arising out of BASEL III requirements. The 5Yr bond yield peaked marginally below 12.0% during 2019 and declined marginally below 10.0%, dipping by 200bps. We expect AWPR to follow a similar trend over the next 6 months dipping below 10.0% towards the end of 4Q2019. As 5Yr bond yield is expected to pick only after the 1Q2020, in a broader sense during the next 12 months, we expect AWPR to stay within the 9.5% – 10.5% band.

Exchange Rate: Exchange Rate to record moderate depreciation with Jun 2020E target at LKR 183.0-188.0

Dollar index is expected to remain strong with the fed rate cut considered to be just an adjustment in the uptrend. The volatile global environment is supporting the USD to stay strong in the mid-term. As the economy picks towards 4Q, we expect to witness a possible weakness in the currency, though it may be counterbalanced by possible inflows in the 1Q2020.

Equity Market: BULLISH

Stock markets usually passes through many phases as indicated in the chart. It very rarely reaches fair value, as a result, markets either overshoot or over-correct. The ASPI, we believe has recovered to Disbelief Stage from Depression stage following the decline in interest rates. Decline in interest rates is likely to record heavy dip in finance cost for most companies while possible rise in consumer demand and credit growth may grow earnings of bulk of the listed companies. We expect market to adopt an upward trajectory over the next 12 months as we expect the ASPI to reach the next stage of the market cycle “Hope” stage and the Optimism stage.

Political Outlook may improve post elections: With Presidential Election to be held in 4Q2019, we believe political uncertainty is likely to settle gradually bringing in policy certainty to the system. Presidential Election may be followed by General and Provincial Elections where a similar trend is likely to follow in line with the past trends.

Dip in Interest rates and possible rise in consumer demand to boost earnings: We expect the lower interest regime to continue over the next 9-12 months resulting in most companies recording lower finance cost from 3Q2019 and beyond. We also expect the lower interest rate environment and the up coming elections to boost consumer demand and economic activity resulting stronger topline growth for most companies. It would also provide opportunity to improve credit demand as well. We expect a considerable improvement in listed company earnings over the next few quarters.

Exposure increased to 90%; We are Bullish: With the reversal in economic activity and company earnings, we expect an upward trend in the market supported by stronger market multiples.

Considering the mid-term positive impact, we upgrade our equity exposure to 90% while maintaining our ASPI expectations in the range of 6,000-6,500, assuming Market PER to be 8.5x – 9.5x. With the expected uptrend we target ASPI to reach 6,000 by 2019 Year End and 6,500 by Jun 2020.

Contact Person:

Dimantha Mathew
Head of Research
First Capital Holdings PLC

Direct     : + 94 11 2 639 853

Sri Lanka’s fundamentals strong, but country at decisive political juncture

Daily FT | 04.10.2019

Stock Brokers in Sri Lanka

From left: Head of Research First Capital Holdings Dimantha Mathew, Director of First Capital Holdings and Executive Director Verite Research Dr. Nishan De Mel and Director/ CEO First Capital Holdings Dilshan Wirasekara, seen during the Mid-Year Economic Outlook report launch 

First Capital Research on Wednesday declared that Sri Lanka’s fundamentals are strong, but the country was at a decisive political juncture, with the upcoming Presidential Election likely to ease uncertainty.

Releasing its Mid-Year Economic Outlook report, First Capital said expectations are for improvement in economic activity and GDP growth towards 4Q2019. “Election during 4Q2019 is likely to provide an added boost to the economy amidst island wide election campaigning,” the report said, adding 1H2020 growth was projected to show strong recovery.

“With the election in 4Q2019, the pick-up in consumer demand may continue in 1H2020 in an accelerated manner, boosting GDP growth and consumer credit. We expect a significant recovery in GDP growth, supported by the lower interest rate environment,” First Capital Research noted. The launch of the Outlook report was followed by a panel discussion featuring First Capital Holdings Director and CEO Dilshan Wirasekara, Director and Verité Research Head Dr. Nishan De Mel, and First Capital Holdings Research Head Dimantha Mathew.

The Outlook report said the completion of the election cycle is likely to resolve political uncertainty on the local front, but predicted there would most probably be a hung Parliament.

“With the current electoral system, no single party is likely to obtain a majority to form a Government. A majority Government has been formed by a single party only on a couple of rare occasions in history, where there has been extreme popularity. In such a situation, similar to previous occasions, we are most likely to see multiple political parties getting together to form a Government. Though multi-party government usually leads to slow decision-making, we are most likely to see President, Government and Provincial Councils controlled by a single party, or a single party together with minority parties, which may provide some stability,” First Capital noted.

The Outlook report also said a strong foreign reserve position would bring in stability, with a sharp drop in imports and planned $ 500 million fundraising via a Samurai BOND ahead of the election, in order to support next year’s foreign repayments.

“We believe foreign reserves are at a comfortable stage, with the foreign repayment cover improving to 2.1x for the 12 months (Jul’19 to Jun’20), suggesting the lowest foreign currency requirement in recent years. The new Samurai bond issue adds a further cushion to foreign reserves, as we expect reserves to be $ 8.0 billion towards 2019 year end, while maintaining above $ 7.0 billion by end of 1H2020,” First Capital added.

Noting that Bond repayments dip amidst the lower SLDBs and lack of Sovereign payments, it said the next 12 months, up to June 2020, illustrate a notable reduction in repayments, especially in 4Q2019 and 1Q2020. “However, we expect foreign payments in the range of $ 300-400 million to exist on a monthly basis, in the form of project loan repayments,” it said.

However, First Capital said total debt payment for 2020 was at Rs. 2.4 trillion, with rollovers from the rest of the year 2019. “The debt to GDP as at 2018 was 83%, whereas we expect it to rise to 85% in 2019, while dipping from 2020 onwards, partly with the acceleration of GDP growth, comparatively lower debt repayments, and possible large FDIs led by the investments into Port City,” it noted.

It also said that reversal of foreign flows and elections may improve liquidity during early 2020. “With the continuous foreign selling in the market, and CBSL reducing CBSL holdings, we believe that maintaining positive liquidity is likely to be a struggle during early 4Q2019. We believe the global trade war, political uncertainty, policy rate cut already given, and Government borrowing requirement to fund the budget deficit expansion amidst the shortage in revenue, may lead to liquidity in the market to be negative. This will lead to lending to remain high resulting in lower credit demand.

“Following the Presidential Election towards 1Q2020, with the settling of the political uncertainty to a certain extent, we expect foreign inflow into our debt market, while the elections in the 4Q2019 may also improve liquidity supported by the rise in economic activity and growth.”

It was noted that private sector credit may remain low for the rest of 2019, with a full year growth forecast to be at 5%, but may pick up, with liquidity in 1Q2020 supported by possible inflows. “Amidst the negative liquidity situation, we expect a possible delay in the decline in lending rates, resulting in low credit growth during 2H2019 as well. Despite the Central Bank cutting policy rates by 50bps in August 2019, the lower liquidity position in the market may hamper decline in rates and boosting of credit.”

In 2020, First Capital expects credit to rise back to a moderate level. However, “we expect liquidity position to improve towards 1Q2020 amidst possible inflows. Thereby, we expect it to lead to a decline in rates and rise in private sector credit growth. We expect 2020 credit growth improve to 14% YoY,” it added.

First Capital also expects inflation to stay within the CBSL targeted range, with no real spikes. The heavy depreciation of the rupee during 2018 is unlikely to be a major threat to inflation, resulting from crash in the consumer demand. Consumer demand saw signs of picking up early in 2019, but immediately following the Easter Sunday attacks, again plunged to all-time low levels, supporting lower inflation levels, which is likely to benefit during 2H2019. “We have downgraded our inflation targets for 2H2019, but still show signs of a slow uptrend due to the currency impact in the comparative month. We do not expect any major threat to inflation during the 1H2020 as well, with inflation likely to hover in the range of 4.0-5.0%.”

First Capital said given internal and external challenges, the overall impact on Sri Lanka’s economy is Neutral.

“The political environment is likely to be stable, possibly providing policy stability. Despite the slower outlook on the economic front, there is room for a certain amount of acceleration, coupled with possible support from the external front with foreign inflows, which makes the overall impact at a Neutral stage,” it said.

 

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research deliver heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and stock market performance – 03.10.2019

Stock Brokers in Sri Lanka

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Nisansala Kuruppumudali, Research Analyst at First Capital commenting on the bond and stock market performance – 02.10.2019

Stock Brokers in Sri Lanka

“The secondary bond market yield curve remained almost unchanged with overall market witnessing thin volumes. Stock market concluded the day in red dragged down by CTC and HHL……..”

Nisansala Kuruppumudali, Research Analyst at First Capital commenting on the bond and stock market performance   #CSE #CBSL #lka.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and share market performance – 01.10. 2019

Invest in Sri Lanka

“The secondary market remained at a standstill as investors remained on the sideline due to the current uncertain environment. Stock Market concluded the day in red dragging down by CTC and CLC, recording the lowest close in 10 weeks.…..”

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and share market performance  – 01.10.2019

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research deliver heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

 

 

Benchmark 1-yr holds steady for second consecutive week

Ceylon Today |  29 .09. 2019

Weekly Yield Movement & Volume

During the week, the secondary market yield curve shifted slightly downwards on the back of buying interest on selected maturities, while the overall market witnessed moderate volumes.

Slight buying interest was seen on short-tenure 2021 maturities with the CBSL announcement to purchase Rs 12.0 billion of bonds maturing in 2021 ([01.05.21], [01.08.21] and [15.12.21]) in Open Market Operations (OMO). Maturities [01.05.21], [01.08.21] and [15.12.21] were accepted at 8.60 per cent, 8.66 per cent and 8.76 per cent, respectively, at the Open Market Operations bond buyback held on [25.09.19].

At the weekly primary bill auction, the benchmark one-year was steady at 8.41 per cent. Meanwhile, the six-month was accepted at the same level of 7.75 per cent after a lapse of one week. In addition, the three-month was accepted at 7.62 per cent, up by 1bps. In the forex market, the rupee continues to depreciate to close the week at Rs 181.53 from Rs 180.95 held at beginning of the week.

Liquidity & CBSL Holdings
Market liquidity remained positive during the week. The highest excess liquidity was recorded on 18 September of Rs 59.9 billion; thereafter, liquidity narrowed down to close the week for Rs 22.4 billion. Meanwhile, CBSL holdings remained relatively stable to close the week at Rs 80.6 billion.

Foreign Interest

Foreign holding in Government Securities decreased by Rs 0.5 billion to record at Rs 109.7 billion, while foreign holding percentage was maintained at 2.0 per cent.
Maturities for next week

The Government Security market is required to settle a Treasury bill maturity amounting to Rs 4.0 billion and Treasury bond interest of Rs 9.2 billion during the week ending 04 October 2019.

Daily Summary

Thursday (19.09.19): During the day, the secondary market witnessed slight buying interest, with moderate volumes amidst the positivity created with the improvement in the liquidity in the market and with the announcement of the Presidential Election date.

Mid-tenor maturities, [15.06.24] and [15.09.24] saw its yields trading in the range of 10.31-10.20 per cent, while [15.09.34] traded in the range of 10.93-10.81 per cent levels.
Friday (20.09.19): The secondary market yield curve remained broadly unchanged, while the overall market witnessed thin volumes.

The CBSL announced the purchase of bonds maturing in 2021 ([01.05.21], [01.08.21] and [15.12.21]) under Open Market Operations (OMO) on 25 September 2019, totalling Rs 12.0 billion.

With this announcement, a slight buying interest was seen on short tenure maturities, [01.08.21] and [15.12.21] trading at 8.85 per cent and 8.95-8.93 per cent levels, respectively.

On the belly-end of the curve, [15.07.23] traded at 9.85 per cent and [15.12.23] traded at 9.95 per cent, in addition, mixed activity was seen on [15.09.24] at 10.27-10.30 per cent levels and long-tenure maturity [15.09.34] changed hands at 10.85-10.87 per cent, respectively.

Monday (23.09.19): With the commencement of the week, the secondary market yield curve remained broadly unchanged with overall market witnessing very limited activities with ultra-thin volumes.

Short tenor [15.10.21] maturity was traded at 8.80 per cent, while with mixed activities, mid-tenor [15.09.24] saw its yield ranging between 10.26 per cent-10.28 per cent. Moreover, in the midst of slight selling interest, yield of long tenor 15.09.34 traded in the range of 10.88 per cent-10.92 per cent.
Tuesday (24.09.19): The secondary market yield curve remained steady at yesterday’s levels, while the overall market witnessed thin volumes. On the short end of the yield curve, buying interest was seen on maturities [01.08.21] and [15.10.21] trading at 8.70-8.80 per cent levels ahead of the weekly T-bill auction and outright purchase on 2021 maturities by CBSL.

Wednesday (25.09.19): The secondary market yield curve remained broadly unchanged, with the overall market witnessing moderate volumes. With the buying interest, short-tenor [01.08.21], [15.10.21] and [15.12.21] reached intra-day’s lows of 8.70 per cent, 8.75 per cent and 8.78 per cent, respectively, while in the midst of mixed activities, the yield of mid tenor [15.09.24] traded between 10.30-10.25 per cent.

Moreover, long-tenor [15.09.34] changed hands in the range of 10.87-10.85 per cent. Meanwhile, at the Open Market Operations bond buyback held on 25 September 2019, [01.05.21], [01.08.21] and [15.12.21] were accepted at 8.60 per cent, 8.66 per cent and 8.76 per cent, respectively.

Furthermore, at the primary bill auction, the yield of the three-month increased only by 1bps to 7.62 per cent, while yields of the six-month and one-year bill remained at the same levels of 7.75 per cent and 8.41 per cent, respectively.