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Sri Lankan shares fall for fifth straight session; tax proposals weigh

First Capital’s Head of Research, Dimantha Mathew, speaks to Reuters

Sri Lankan shares ended for a fifth straight session of declines on Friday, and reached their lowest closing level in more than four months, in thin volume as investor sentiment was hit by budget tax proposals.

The government aims to boost its 2017 tax revenue by 27 percent to 1.82 trillion rupees ($12.36 billion) year-on-year, including revisions in corporate and withholding taxes and meet a commitment given to the International Monetary Fund in return for a $1.5 billion loan in May.

The benchmark index of the Colombo Stock Exchange ended down 0.29 percent at 6,326.11, its lowest close since July 7. It declined 1.5 percent in the last five sessions after the budget was presented on Nov. 10.  The index was in the oversold territory, with the 14-day relative strength index at 23.399 versus Thursday’s 25.714, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.

“Investors are worried with the rising interest rates after the T-bill yields rose this week. There isn’t a lot of selling pressure and investors are awaiting cautiously,” said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.

Analysts said some of the budget proposals are still unclear, and there are concerns that some of them could be reversed, like what occurred last year.

The market shrugged off a move by Sri Lanka’s Securities and Exchange Commission (SEC) to change its minimum floating rule to raise market liquidity. Foreign investors sold a net 31.95 million rupees worth of shares on Friday extending the year-to-date net foreign outflow of 1.11 billion rupee worth of shares.

Analysts said the increase in various taxes and fees would reduce the disposable income of people and challenge the consumption-led growth.

Turnover was 272.7 million rupees ($1.84 million), well around a third of this year’s daily average of 702.2 million rupees. Shares of Sri Lanka Telecom Plc dropped 3.79 percent, while Hatton National Bank Plc slid 1.59 percent.

($1 = 147.8500 Sri Lankan rupees)

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sherry Jacob-Phillips)

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