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| Economic and Sector Overview - Upto December 2009 |
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Quarterly Growth Rates
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Review of the Economy
- The Sri Lankan economy has expanded at 4.2% in Qtr 3, a growth from minimal growth of 1.5% in Qtr 1 and 2.1% in Qtr2 in 2009. Cumulative growth of 2.6% has been recorded for the current year in comparison to an annual growth rate of 6.0% recorded in 2008. The low GDP growth in the first half of 2009 was due to heightened military offensive. However easing of global recession and change of sentiment domestically with the end to the three decade long war contributed to the turn of events in the third quarter.
- Service sector lead the growth in Q3 -2009 recording a growth of 5.1%, followed by industry sector 4.4%. However the agricultural sector recorded a negative growth of 0.9%.
- From January to Oct 2009, exports were down 15.6% amounting to US$ 5,748 million and imports down by 33.5% amounting to US$ 7,965 million. This resulted in a narrower trade deficit of US$2,217.
- Private remittances for the period Jan to Nov amounted to US$2,727.9 mn (+15.0%). Private remittances improved due to the confidence gained with the end of the war in SL.
- Foreign reserves improved to US$ 6,894mn from US$2,991mn end Dec08. The significant improvement was mainly due to the continued absorption of foreign exchange by the Central Bank. The gross official reserves, with and without (ACU) funds, were sufficient to finance 8.4 and 6.4 months of imports.
Inflation, interest rates & exchange rates
- Inflation as measured by the point-to-point change in the Colombo Consumers' Price Index (CCPI) reduced from 14.4% as at end December 2008 to a low of 0.70% in Sept but picked up to 4.8% end Dec 09. Also CCPI annual average change peaked at 22.6% as at end December 2008 and currently is at 3.4%, indicating a drop in food prices & commodity prices.
- CBSL reduced its key policy rates by 300 basis points and 225 basis points respectively on the repurchase rate and reverse repurchase rate during the calendar year 2009. Currently repurchase rates are at 7.50 % & Reverse Repurchase rate at 9.75 %. Inter bank call money rates have been volatile ranging from a low of 8% and a high of 10%. The 3 month T-Bill rate has come to single digits of 7.25% (since Nov 2005) which reduced 1008 basis points in the current year while the 12 month T-Bill rate reduced by 991 basis points to 9.17% as at end Nov 09. The government 2-3 year bonds are currently trading around 9.50% - 11.00%. Interest rate decline is expected to result in growth in credit to the private sector.
- The US$ closed at SLRs.114.45 as at end Dec 2009 (Dec 08 - SLRs.112.94). This amounts to a depreciation of 1.34%. Against such currencies as the Euro the Rupee depreciated 3.5% and against the Sterling, the rupee depreciated 11.0%.
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Dec 08 |
Mar 09 |
Jun 09 |
Sep 09 |
Dec 09 |
| Treasury Bill 3M (%) |
17.33 |
14.62 |
11.41 |
9.70 |
7.73 |
| 12M (%) |
19.08 |
16.63 |
12.34 |
11.17 |
9.33 |
| Call Money(%) |
13.49 |
11.39 |
9.66 |
9.39 |
8.97 |
| Prime Lending(%) |
18.20 |
18.89 |
15.89 |
13.39 |
10.91 |
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SLRs. Per unit as at 31st Dec 08 |
SLRs. Per unit as at 31st Mar 09 |
SLRs. Per unit as at 31st Dec 09 |
Appreciation /(Depreciation)
for year 2009 |
| US $ |
112.94 |
114.54 |
114.45 |
-1.34% |
| STG |
166.60 |
165.83 |
185.09 |
-11.09% |
| Euro |
158.37 |
155.34 |
163.94 |
-3.52% |
| Yen |
1.25 |
1.16 |
1.23 |
-1.60% |
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Market commentary
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31st
Dec 08 |
31st
Mar 09 |
30th
Jun 09 |
30th
Sep 09 |
31st
Dec 09 |
Movement
for F/Y |
| ASPI |
1503.0 |
1638.1 |
2432.1 |
2938.6 |
3385.5 |
106.7% |
| Milanka |
1631.3 |
1736.2 |
2721.6 |
3297.4 |
3849.4 |
121.7% |
| Avg.T/O Rs.mn |
71 |
488 |
736 |
963 |
1198 |
145.5% |
| Mkt Cap Rs. bn |
488.81 |
533.75 |
781.77 |
941.51 |
1092.14 |
104.6% |
| Mkt P/E ratio |
5.4 |
5.8 |
9.9 |
13.8 |
16.5 |
184.5% |
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- Sri Lanka is the second best performing market in the world for the calendar year 2009. The All Share Index appreciated 125% and Milanka Price Index appreciated 136%.
- Investor confidence was dampened temporary with the announcement of Presidential elections but much speculation has built up in anticipation of strong contender being put forward as a common candidate from the opposition parties.
- Blocks of HNB, Comm Bank, DFCC & NDB was mopped up by local buyers, with international Galleon Fund selling out.
- Foreign buying was evident on specific stock John Keells Holding by a new entrant Janus Fund which acquired almost 10% of the company during the last three months driving the share price to a high of Rs.180.
- The market has re-rated to 16 P/E ratios and average turnover for the day has improved to over Rs.1 bn with market capitalisation at record high of over a trillion rupees.
- Tourist arrivals for the period Jan to Nov has marginally improved 0.4% in year 2009. Also dollar income from tourism has improved same. This is a turn around from a negative scenario experienced by the sector.
- Renuka Agro Foods limited made its début on the Dirisavi Board at a price of Rs.2.50 and first traded price was Rs.4.10, giving over 50% return.
- Total foreign inflow for the calendar year 2009 has been negative (outflow) Rs.795 mn due the sale on galleon fund holding in SL.
- The market is trading at the highest point we have seen with the All Share Index at 3532 index levels.
- Construction & Engineering has appreciated more than 300% for the F/Y due the bullish sentiment with the re-building of the war torn areas. Biggest contributor in the sector has been the movement of Tokyo Cement with the announcement of 1 for 10 sub division of the share
- Other sectors that have performed more than 200% for the period of review have been Diversified, Oil Palms and Trading.
- The telecom sector and health care sectors have under - performed the benchmark ASI.
- The Banking & Finance sector which accounts for 18% of market cap has grown by 133%, above the market performance of 125%
Future outlook
- Market setting new records and likely to set further highs. New support levels of the market to be in the range of 3400 -3500 index levels
- The current run has mostly been driven by domestic institutional and retail buying. Next phase of growth in the market to be driven by foreign buying.
- Foreign fund to increase its allocations to emerging markets and Asia as forecasted by many investment houses.
- Also Sri Lanka to attract new portfolio investors with the end to the war and dawn of a new era. Also likely to see the flow of diaspora money to the Colombo Bourse. Hence trading volumes to improve.
- Single digit interest rates likely to prevail and transformation from fixed income investments to equities y investments to take place. Also given the reduction of the risk factor of the country and equity market risk premium demanded to reduce.
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