Struggling SL firms hope for macro stability
The road ahead for the Sri Lankan stock market, manufacturers, leisure companies, and the imports industry will be tough in the coming months due to the instability created in the past few weeks.
With likely currency depreciation in the coming months, the Colombo Stock Exchange (CSE) will follow a similar trend in markets such as Argentina and Zimbabwe. In these markets, the index initially pulled back sharply due to accelerated depreciation of the currency, high inflation, high taxes, and high-interest rates and thereafter recorded very strong sustained gains.
From January’s all time high market cap of Rs. 6 trillion the CSE saw almost more than 50 per cent or Rs. 2.865 trillion wiped out as at Thursday (14). to stand at Rs. 3.1 trillion.
After the initial pull back and consolidation, the indexes far outperformed fixed income even when nominal interest rates touched all-time highs due to real interest rates being negative or marginally positive.
Fixed income has not provided protection against currency depreciation even when nominal rates touched an all-time high, a stock market analyst said. In Sri Lanka it is most likely that the currency will continue to depreciate in the short/medium term, and investors will use fixed income securities more in the coming months, he added.
Due to fertiliser price increases, there is a production drop of 30 per cent in commodities such as spices, according to an industry analyst. W. Jinadasa, a tea exporter confirmed this noting that there is a quality drop of about 70 per cent because the raw materials put in are substandard. He said that despite prices doubling, tea companies could not get that benefit due to high fertiliser price increases.
Industry analysts said this is the same for spice exports such as cinnamon and pepper.
Mahendra Jayasekera, Managing Director Lanka Tiles told the Business Times that 75 per cent has been wiped out of the ceramics industry in the past three months. “The export order situation is dicey and uncertain as customers are questioning if we can carry out the orders on time due to the ongoing issues.”
Leisure firms are struggling due to the tourism industry being hit in the past couple of months. The imports sector is being wiped out of businesses slowly as they cannot open letters of credit from banks due to the forex crunch.
Meanwhile, some companies in the export manufacturing sector are holding on as orders are coming early but prolonging the current situation will severely impact their businesses,
a leading garment exporter told the
Business Times.
Shiham Marikkar, Secretary General/CEO at the National Chamber of Exporters said that overseas buyers of exporting firms have stated concerns, but the companies are in a valiant effort to convince the buyers that orders can be executed on time. He stressed that the immediate requirement right now is stability and a stronger government with competent officials looking after these areas. “Then we are back in the game.”
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