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Rate cut improves market sentiment; foreign buying slows down

17 December 2012 03:20 am - 0     - {{hitsCtrl.values.hits}}


Despite the boost brought in a by a surprise policy rates cut by the Central Bank last week, foreign buying in the Colombo bourse slowed during last week, a local brokerage said.

According to Asia Wealth Management Co., the foreign purchases for the week fell 22.9 percent Week-on-Week to Rs.1.38 billion. However, the market has so far received a foreign inflow of over Rs.37 billion compared to a net outflow of Rs.17 billion in 2011.

“It is difficult to ascertain the reason for this behaviour (by foreigners). We stress the fact that although the CSE maybe attractive relative to regional peers on a P/E basis, investors must recognize the fact that the long term prospects for the different sectors which comprise the Colombo bourse is unequal,” Asia Wealth said.

The broking firm further said that therefore the quarterly earnings performance would likely to be a suitable barometer for assessing sector performance, and investors must hence invest accordingly.

The Central Bank last week reduced policy rates by 25 basis points and lifted the 18 percent credit ceiling imposed on commercial banks, in a surprise move.

 According to Softlogic Equity Research, the decisions which have come earlier than expected, signals Central Bank's intention to shift its focus on growth during 2013, from combating inflation.

“The drop in interest rates and the removal of credit ceiling would benefit the corporates as a whole, whilst promoting better growth during 2013E. Finance sector players would benefit with better demand and higher margins, whilst smaller banks would now have adequate room to expand their loan books,” Softlogic equity noted.

“With the expected fast recovery in profitability in finance sector players and small & medium sized banks following the above policy decisions, we remind value hunters to accumulate on the steady players in the segment,” it added.

The attractive interest rates provided by fixed income securities have drawn the attention of the investors towards it which resulted in the equity market losing steam with dreary sentiment prevailing. Despite this situation, foreigners remained as net buyers concentrating on fundamentally sturdy counters.

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