By Chandeepa Wettasinghe
An announcement of the election date would bring the much needed certainty to the Colombo Stock Exchange, which would grow exponentially, following the formation of a new government, according to leading stockbrokers, who also cautioned against foreign exchange risk.
“I personally feel that it will go up,” Colombo Stock Brokers Association Chairman and Softlogic Stockbrokers CEO Dihan Dedigama said.
Candor Equities CEO Ravi Abeysuriya noted that companies have been performing well despite the prevailing uncertainty.
Since May 20, when the All-Share Price Index closed at 7,289, the market has been on a downward trend with foreign and retail selling. Last week’s trading saw the market reaching a six-week low of 7,120 before closing at 7,122 on Friday, as heavy weight John Keells Holdings bounced back.
According to the 100-day programme, the parliament was to be dissolved in April. However, conflicting messages have been surfacing from the political arena recently, and some stock brokers fear that elections would be delayed till 2016.
The uncertainty in the lead up to the recent presidential elections saw the main index fall 300 points from the highest ever 7,530 mark within 3 days of trading in November.
“The uncertainty is factored in the current stock prices and they’re trading in a very narrow range. But I think with temporary corrections, they will be on an upward trend,” Capital Trust Securities CEO and MD Thushan Wickremasinghe said.
Acuity Stockbrokers Executive Deputy Chairman Deva Ellepola expressed that announcement of the election date would stop the selling of stocks.
“People need to plan ahead, 3-months, 6-months or a year. So the retailers will keep selling but the long term investors will stay. Investors will also see whether the levels will fall down to around 6,800 before buying, or if they see the market going up now, they will buy,” he said.
The brokers noted that any government which will be elected would give confidence to both domestic and foreign investors, which would bring massive inflows to the bourse.
“We currently have a minority government, so it can only get better,” Wickremasinghe said.
However, Abeysuriya cautioned about interventionary measures and macroeconomic effects.“Whatever regime that comes, there will be certainty; as long as there is no disruption from the government and unless there’s an increase in interest rates or fuel prices,” he noted.
However, some noted that the depreciation of the Rupee against a strong Dollar due to increased foreign borrowings would play a major role in the bourse in the coming weeks.
During a lull in spot trading last month, which resumed in a stable manner last week, Rupee forwards had depreciated significantly.
“Currency will be the main concern,” Dedigama said.
Ellepola said that further depreciation would lead to more foreign outflows and hoped that the Central Bank would keep supporting the Rupee. “We don’t know what the new government’s policy will be with regard to interest rates and foreign exchange. The Central Bank Governor has said that the rates will be kept, but if that expectation is broken, it will hit the market hard,” Ellepola added.
However, apex think tank The Pathfinder Foundation recently said that the Central Bank would be forced to let go of the rupee and cause a foreign exchange meltdown following the elections.
Meanwhile, the stockbrokers noted that banking and finance, fast moving consumer goods and manufacturing industry stocks would gain the most in the coming months.