Sri Lanka shares rise for second day on retail buying

Reuters: Sri Lankan shares recovered from early losses to post their second straight gain on Wednesday, as local retail investors bought beaten-down banking and diversified stocks, though continued selling by foreign investors on worries over macroeconomic stability weighed on sentiment.

Foreign investors sold a net 190.95 million rupees ($1.32 million) worth of equities, their fifth straight session of selling, and extending the year-to-date outflows to 3.05 billion rupees.

"Retail investors were trying to keep the market alive. But we expect the selling pressure to bounce back as interest rates remain high with the negative sentiment," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.

The benchmark share index ended 0.1 percent, or 6.09 points, higher at 6,165.11, its highest close since Feb. 29.

Turnover was 616.4 million rupees, less than this year's daily average of 790.9 million rupees.

The market will see subdued trade in the coming days due to the Sinhala-Tamil new year on April 13 and 14, traders said.

Analysts said investors are cautious about macroeconomic uncertainty after a rating downgrade and unclear capital gain tax.

Sri Lanka on Friday postponed a plan to reintroduce capital gains tax by six months after the move threatened to dent foreign investor sentiment.

Stockbrokers said the concern now is how the government is going to impose the tax, rather than the tax itself.

Higher market interest rates and higher borrowing by the island nation facing a balance-of-payments crisis have also weighed on investor appetite for risky assets, dealers said.

The average weighted prime lending rate has risen 84 basis points to 9.19 percent since Feb. 19, when interest rates were increased by 50 basis points, central bank data showed.

Cargills (Ceylon) Plc shares rose 3.57 percent, while Sri Lanka Telecom Plc gained 0.25 percent. 

($1 = 144.5000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Sri Lanka capital gains tax in six months

(Reuters) - Sri Lanka has postponed a plan to reintroduce capital gains tax by six months, a senior official said on Friday, after the move dented foreign investor sentiment.

Prime Minister Ranil Wickremesinghe last month told parliament his government would increase value added tax (VAT) to 15 percent from 11 and collect capital gains tax for the first time since 1987, ahead of talks on a $1.5-billion IMF loan.

The measures were to have come into force from the start of April.

"The implementation of capital gains tax is postponed by six months," Deputy Treasury Secretary S. R. Attygalle told Reuters on Friday. He said the increase in VAT had also been postponed.

Wickremesinghe's government has changed several revenue proposals announced in its 2016 budget in November, after meeting opposition.

The budget deficit is expected to have hit 7.2 percent of GDP in the last year, missing the target of 4.4 percent. Finance Minister Ravi Karunanayaka last week blamed the increase on the high cost of refinancing loans raised by the former government of Mahinda Rajapaksa without parliamentary approval.

On Tuesday, the central bank said Sri Lanka was planning to return to international capital markets to issue international sovereign bonds and raise up to $3 billion this year.

Foreign investors have sold 1.3 billion rupees ($8.81 million) worth of shares since Wickremesinghe's announcement.

The IMF has long called on Sri Lanka to reduce its budget deficit, raise revenues and bolster its foreign exchange reserves. These are likely to be the main conditions for the grant of the loan, economists say.

Sri Lanka tourist arrivals up 22-pct in March, India surges ahead of China

ECONOMYNEXT - Sri Lanka's tourist arrivals surged 22.8 percent in March 2016, from a year earlier, with India surging ahead of China, and key Western European generating markets growing 30 to 40 percent.

In the first quarter of 2016, arrivals were up 22.1 percent to 584,818.

Visitors from South Asia rose 28.6 percent to 96,913 with Indian arrivals surging 38.2 percent to 30,170 from a year earlier.

Indian arrivals in the first quarter rose 32.2 percent to 85,624, overtaking China despite arrivals rising 46 percent to 77,914.

Arrivals from China rose 40 percent to 19,645 in March.

In 2015 China displaced India from its long time pole position as Sri Lanka's top generating market. India became Sri Lanka's top market after an administration in 2001, improved economic freedoms and ended visa requirements.

The last administration also helped tourist arrivals by providing fast e-visa and improving economic freedoms by ending paper work, physical documentation and delays.

Sri Lanka has become the latest Indian destination for weddings and the country is getting good press in Indian media.

Visitors from Western Europe rose 22.6 percent to 69,972, with British arrivals rising 32 percent to 44,813.

German arrivals rose 6.3 percent to 16,264. Arrivals from France rose 11 percent to 11,175, visitors from Italy rose 30 percent to 2,683 and visitors from Sweden rose 43 percent to 2,339.

Sri Lanka has seen a surge of new smaller hotels coming up with internet booking engines driving sales.

Sri Lanka's tourist promotion office has also helped the trend with light handed regulation. The tourist agency could stop the growth of the industry by tightening regulations.

Sri Lanka's larger overpriced hotels have been calling for tighter regulations to block their growth.

But economists including those from Harvard had warned authorities to confine regulations only to maintaining safety standards especially including fire hazards.

High end and budget hotels compete in different markets. The mass-market budget tourism sector promotes more people-to-people contact is in closer to the true capitalist ideal, bringing wider benefits to lower income segments, compared to high-end tourism.

Over the last year Sri Lanka's rupee has also collapsed slashing real wages of tourist sector workers through the slave-labour effect of the neo-Mercantilist philosophy of a 'competitive exchange rate'.