Sri Lankan shares fall to 6-week low; seen gaining on hopes of lower rate

(Reuters) - Sri Lankan shares edged down to six-week lows on Wednesday, led by large caps despite foreign inflows, but dealers expect the index to bounce back on hope that interest rate might gradually come down after yields in t-bills fell at an auction.

Yields in t-bills fell 31 basis points to 44 basis points at Wednesday's weekly auction, after they spiked between 112 basis points and 124 basis points in the two previous weekly auctions. The 91-day t-bill yield fell from a 14-month high of 7.10 percent on Wednesday.

"People will feel positively about it. We expect them to come down further," said Dimantha Mathew manager, research at First Capital Equities (Pvt) Ltd.

The main stock index ended 0.19 percent, or 13.10 points firmer, at 7,043.90, its lowest close since Feb. 2. It had lost 3.74 percent in the last 13 sessions.

The day's turnover stood at 700.2 million rupees ($5.27 million), less than this year's daily average of 1.28 billion rupees.

Foreign investors were net buyers of 204.2 million rupees worth of shares, extending the year-to-date foreign inflow to 3.23 billion rupees.

Before the market opened, the central bank kept key policy rates steady at record lows for a 14th straight month as expected, and said the low interest rate environment is expected to continue benefiting from lower inflation.

Dealers said the market was closely monitoring interest rates amid heavy government borrowing. Sri Lanka's new government has borrowed around $1.37 billion since March 9, which economists have blamed on poor revenue and higher expenditure.

The heavy borrowing has resulted in a spike in market interest rates and Deputy Economic Affairs Minister Harsha De Silva told Reuters the borrowing was to pay the contractors of the infrastructure development projects.

Shares in Ceylon Tobacco Co Plc fell 0.99 percent, while biggest listed lender Commercial Bank of Ceylon Plc declined 2.23 percent. ($1 = 132.9000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)

Monetary Policy Review – March 2015 - Policy rates unchanged

According to recently released data by the Department of Census and Statistics, the Sri Lankan economy is estimated to have grown by 7.4 per cent in 2014 compared to 7.2 per cent in 2013. This growth was mainly supported by the expansion in the Industry sector, which grew by 11.4 per cent and the Services sector, which grew by 6.5 per cent. Meanwhile, the Agriculture sector that was affected by adverse weather conditions, recorded a marginal growth of 0.3 per cent.

Going forward, the economy is expected to maintain its growth momentum in 2015 amidst sustained low and stable inflation and expected improvements in business confidence.

Headline inflation, on a year-on-year (y-o-y) basis, decreased significantly to 0.6 per cent in February 2015 from 3.2 per cent in the previous month reflecting the downward revision of domestic fuel prices and the reduction in the prices of certain essential items announced in the Interim Budget 2015. Given the impact of such measures and supported by improved supply conditions, headline inflation is likely to remain at low levels, particularly in the first half of 2015. Meanwhile, core inflation, which reflects underlying demand pressures in the economy, declined to 0.8 per cent, y-o-y, in February 2015 compared to 2.1 per cent in January 2015.

The external sector remains resilient with continued foreign currency inflows to the current account as well as to the financial account of the Balance of Payments (BOP). During the remainder of 2015, the external sector is projected to strengthen further with the expected reduction in expenditure on imports together with higher inflows on account of tourism and workers’ remittances as well as receipts to the government, the banking sector and other private corporates.

Credit obtained by the private sector from commercial banks increased by 11.5 per cent, y-o-y, in January 2015, while in absolute terms, credit disbursements during the month amounted to Rs. 21 billion. Credit to the private sector from commercial banks is expected to sustain its growth momentum in the period ahead benefiting from low market interest rates and increased business confidence.

Supported by higher domestic credit expansion including credit granted to the government and public corporations, broad money growth was 12.6 per cent on a y-o-y basis in January 2015.

Given signs of sustained increase in credit flows to the private sector, the Central Bank removed the restriction placed on the access to its Standing Deposit Facility (SDF) by OMO participants with effect from 02 March 2015. Following this, the overnight interest rates moved upwards and settled within the policy rate corridor closer to the lower bound. Despite some upward movements in interest rates in certain market segments, the low interest rate environment is expected to continue, benefiting from the prevailing low inflation levels in the economy, thus providing an impetus to economic activity.

Taking the above developments in the economy into consideration, the Monetary Board at its meeting held on 17 March 2015, was of the view that the current monetary policy stance is appropriate, and accordingly, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank of Sri Lanka unchanged at 6.50 per cent and 8.00 per cent, respectively.

The date for the release of the next regular statement on monetary policy would be announced in due course.

Monetary Policy Decision: Policy rates unchanged.
Standing Deposit Facility Rate (SDFR) 6.50%
Standing Lending Facility Rate (SLFR) 8.00%
Statutory Reserve Ratio (SRR) 6.00%

Sri Lanka Renuka Agri Foods December net Rs69mn

EconomyNext - Renuka Agri Foods, a Sri Lankan manufacturer of coconut-based food and beverage products, reported a net profit of 69 million rupees in the December 2014 quarter compared with a loss of 16 million the year before.

Sales were virtually stagnant during the period, down slightly to 872 million rupees from the previous year, a stock exchange filing said.

The firm, part of the Renuka Holdings group, reported quarterly earnings per share of 12 cents compared with a loss per share of three cents the year before.

In the nine months ending December 2014, Renuka Agri Foods said net profit shot up 248 percent to 273 million rupees with sales rising eight percent to 2.8 billion rupees from 2.6 billion rupees.

EPS for the nine months were 49 cents against 14 cents the year before.

Executive Dircctor Shamindra Rajiyah told shareholders gross profit increased by 131 million rupees for the nine months ended December 31, 2014 compared to same period last year.

This was due to an increase in sales and a four percent increase in gross profit margin on "cost savings in the supply chain and enhancing production efficiency."

Market expects ½% hike in SDFR

By Paneetha Ameresekere

Ceylon Finance Today: The higher rates accepted for Treasury (T) Bonds of 2017 and 2019 maturities at yesterday's (Tuesday, 17 March) primary auction is an indication that the market may expect a rate increase in Central Bank of Sri Lanka's (CBSL's) key, standing deposit facility rate (SDFR) at today's (Wednesday's) monetary policy statement for the current month, market sources told Ceylon FT.

"With deposit rates for senior citizens fixed at a mandatorily higher15% rate, we expect CBSL to announce a 50 basis point (bp) (1/2%) increase in CBSL's SDFR to 7% at today's monetary policy statement," the sources said. CBSL last changed its SDFR rate 18 months ago when it was reduced by 50 bps to 6.5% in October 2013.

Meanwhile, CBSL's standing lending facility rate is 8%.

Yesterday's primary T Bond auction saw the 15 September, 2019 maturity fetching a weighted average yield (WAY) of 9.13% and that of the 1August 2021 maturity 9.55%, though, after the auction, those yields were trading a few bps lower than their auction price in secondary market trading, sources said.

In related developments, the weighted average rate (WAR) of overnight market repo transactions increased by 15 bps to 6.76%, though the WAR of call money remained unchanged at 6.70%, yesterday.

In the meantime, in the foreign exchange (FX) market, movements were little changed, over that of the previous day Monday's developments at yesterday's trading, the sources said. Volumes were thin, with the market adopting a 'wait and see' attitude, they said.
On Monday, 16 March, trading in the FX market was executed on two weeks forwards at Rs 133.80/134.00 to the US dollar in two way quotes in interbank trading. Spot was being controlled at Rs 132.90 to the dollar, while trading in one week's forwards was done at Rs 133.60.

Meanwhile, statistics showed that another US$ 106.8 million was spent from CBSL's foreign reserves to defend the rupee at yesterday's trading. As a result, market's excess liquidity declined from Rs 88.3 billion to Rs 49.3 billion yesterday.
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Minority shareholders of companies unaware of rights and perks’

A majority of minority shareholders in the Sri Lankan corporate sector are unaware of the rights and perks they are entitled to as a part of company stakeholders, a joint seminar organized recently by The Chartered Institute of Sri Lanka (CASL) and the Colombo Stock Exchange (CSE) was told.

The seminar focused on areas such as legal provisions available in the Company’s Act to protect minority shareholders, rights and obligations of a shareholder, how to achieve the maximum from a shareholder meeting and, finally, legal recources available for a shareholder in case of a breach of conduct. Deshani Wijaywardena, Attorney at Law, Naomal Goonawardena, Partner Nithya Partners and Roshani Kobbekaduwa, Partner F J & G de Seram participated as the panelists in the seminar.

The following are some of the points focused on at the forum:

In addition to the major shareholders, the minority shareholders do play a vital role in a company’s core structure. Though we are in an age where a massive number of major shareholders have entered the market, it is vital for the minority shareholders to be aware of their rights.

With a lot of large-scale investors and foreign investors entering the local market, it is advisable for the whole corporate community to educate themselves via the country’s ‘Companies Act’. The ‘Companies Act’ highlights the basic frameworks that should be followed and explains all the legal rights that the shareholders of a company are bound to have.

Accordingly, the legitimate rights of a company shareholder can be divided mainly into four categories. Statutory rights, documentary rights, legal rights and proprietary rights can be named as the four categories of rights that a company shareholder is entitled to. Adding to these, the Right to Information and inspection of a company’s records and the right to bring representative suits on a course of action on behalf of the company to prevent or remedy mismanagement or unauthorized acts and to compel the company to enforce his/her rights, could be described as the most important rights that a minority shareholder of a company should be aware of.

If the share market is to be activated, it is imperative that the minority shareholder is adequately protected. The ‘Companies Act’ provides for over 150 offences. Several economists have strongly alleged that most minority shareholders are unaware of their rights while the majority shareholders have all the perks at the expense of the minority shareholders.
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