Election outcome weighs on investor sentiment

• Investors look for stability and direction 
• Govt.’s reform agenda likely to slowdown 
• Analysts expect some fiscal slippage with populist measures creeping in

The Colombo bourse’s indices ended yesterday’s trading in the red territory with the outcome of Saturday’s local government election weighing on the investor sentiment.

The landslide victory by the Sri Lanka Podujana Peramuna Party (SLPP) backed by former President Mahinda Rajapaksa has evidently shocked the reform-oriented coalition government of the United National Party (UNP) and Sri Lanka Freedom Party (SLFP).

As Mirror Business reported yesterday, the government’s reform agenda—both economic and political—is likely to lose momentum, at least in the short term, if a change in the current parliament’s composition takes place.

Speculation was rife yesterday evening that the UNP will move away from the coalition and form a government of its own with the support of several SLFP parliamentarians, who would cross over.

However, analysts point out that even if the UNP was able to form a government, its ability to push forward the reform agenda will be highly restricted in the current political context.

Analysts also said some fiscal slippage can be expected with the government trying to appease the masses with tax cuts and subsidies as higher cost of living was a key slogan of the Rajapaksa faction during their election campaign.

During a press conference yesterday, Rajapaksa called for parliament to be dissolved for fresh elections despite the constitutional roadblocks for such a move.

“The uncertainty after the defeat brought down the market. Investors will wait to see some stability and directions on how both the coalition partners are going to go forward with a stable government,” Acuity Stockbrokers CEO Prashan Fernando was quoted as
saying to Reuters.

The benchmark All Share Price Index fell 29.30 points or 0.45 percent to close at 6542.99 and the more liquid S&P SL20 Index fell 15.21 points or 0.41 percent to close at 3714.97. The day’s turnover stood at Rs.598 million, well below last year’s daily average of Rs.915.3 million.

Foreign investors, however, bought a net Rs.289.2 million worth of shares, extending the year-to-date net foreign inflow to Rs.5.3 billion.
Asia Securities said crossings accounted for 31 percent of the turnover with three crossings recorded in Softlogic Holdings PLC (Rs150.4 million) and one crossing recorded in Sampath Bank PLC (Rs.31.9 million).

The diversified sector was the highest contributor towards the turnover with Rs.278 million followed by banks, finance and insurance sector and construction and engineering sector generating Rs.241 million and Rs.18 million, respectively.

Brokers said retail activity was witnessed in counters such as Softlogic Holdings, RIL and Lankem Development.