Sri Lanka stock index recovers to end at fresh peak after plunging on budget woes

ECONOMYNEXT – Sri Lanka stocks closed at a new all-time closing high on Monday (15), recovering from initial plunge due to panic selling in the financial sector shares over budget announcements, brokers said.

On Friday, the Finance Minister proposed a 25 percent retrospective tax surcharge on firms that earned over 2 billion rupees in 2020/21 and 3 percent increase on VAT for banks, insurance, and financing firms.

The Finance minister said 62 individuals and companies under this category are expecting to generate 100 billion rupees through this tax.

A value added tax (VAT) was increased to 18 percent from the current 15 percent on banks and financial service providers under supply of financial services by specified institutions with effect from Jan.1, 2022, targeting 14 billion rupees from the proposal.

“Over the weekend the investors had a lot of time to understand and educate themselves about the changes,” a broker said.

“When the market opened, we saw a sudden panic selling. But investors wanted to hold on to the stocks that were fundamentally strong, and the market eventually saw a recovery. It is a very positive sign for the market.”.

The brokers said investors sold the stocks that were expected to hit by the tax surcharge.

“Stocks that were expected to impact by the 25 percent tax surcharge saw a dropped in the morning”.

In the morning session, the market fell 2.5 percent, and the main share index ASPI plunged to 10,372 immediately after it opened and dropped to over 2 percent.

The fall was led by banks.

However, brokers expected a recovery after some time as it was the same in 2015 when the last government came up with a similar retrospective tax.

The Colombo benchmark All Share Price Index (ASPI) closed 0.81 percent or 86.28 points higher at 10,752.37, its fresh all-time closing high.

The S&P SL20 index of more liquid stocks, however, fell 0.49 percent or 17.57 points to close at 3,598.38.

The day’s turnover was 6.9 billion rupees, above this year’s average daily turnover of over 4 billion rupees.

Foreign investors, however, sold a net of 56.6 million rupees’ worth of shares, extending the net foreign inflow to 46.2 billion rupees so far this year.

The gain was led by LOLC Finance, LOLC Holdings and Expolanka Holdings.

LOLC Finance gained 15.27 percent to close at 31.80 rupees a share while LOLC Holdings gained 4.22 percent to close at 738.00 rupees.

Expolanka Holdings gained 3.58 percent to close at 202.75 rupees.

The Diversified and Financials Industry index was the most active today and fell 4.9 percent. The bourse saw 75 stocks gaining against 125 falling on Monday. (Colombo/Nov 15/2021)

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