Sri Lankan shares closed at a near three-week high on Monday in dull trade as cautious investors selectively bought risk assets, while foreign investors exited amid a rise in yields of government securities. Uncertainty over a capital gains tax and economic growth, and a higher budget deficit also hurt market sentiment, analysts said. Foreign investors sold 137.5 million rupees ($946,644) worth of shares on Monday, extending the net foreign outflow so far this year to 1.79 billion rupees worth of shares.
The benchmark share index ended 0.51 percent, or 30.78 points higher, at 6,088.57, its highest close since March 1. "Nothing much is happening. Overall, everything is very dull with holidays in-between, and investors are worried over the uncertainties," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.
Markets will be closed on Tuesday and Friday for local holidays. Investors preferred fixed interest-rate bearing assets over shares due to a rise in yields on treasury bills, which are hovering at more than two-year highs, and on the central bank's unexpected interest rate hike in mid-February, dealers said. Yields on t-bills jumped by 62-90 basis points at a weekly auction on Monday to 29-month highs.
Sri Lanka will raise its value-added tax and reintroduce capital gains tax to break out of a debt trap, ahead of talks on a $1.5-billion loan it is seeking from the International Monetary Fund. Sri Lanka's economy is expected to grow 5.3 percent in 2016, data from the state statistics office showed, but analysts say tight monetary and fiscal policies may curb growth. The $82.2-billion economy expanded at a sluggish 2.5 percent in the December quarter, down from an upwardly revised 5.6 percent in the previous quarter.
Analysts and economists worry slower growth could reduce corporate earnings of some listed firms. Turnover stood at 466.5 million rupees, well below this year's daily average of 787.8 million rupees.
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