The Colombo equity market ended the year 2021 at its highest level with a notable 80.5% return amid a much relaxed environment helped by an aggressive vaccine drive, significant local and retail market participation, fueled by low interest rates and encouraging earnings.
A professional team of equity market research experts led by Nation Lanka Equities (Pvt) Ltd Head of Research Anjula Navaratne said:” Travel restrictions imposed during the 1st half of 2021 though showed a slow recovery (growing up just 15.7%), the momentum rapidly picked up in the second half of ’21 specially with much relaxed travel restrictions that came about amid Sri Lanka managing to inoculate over 60% of the population in a short period of time.
The activities that bounced back to near normal thereafter along with borders too opening for foreigners invariably gave added impetus to the market activities. High inflation rate that spiraled in 2H’21 specially after removal of maximum ceiling rates imposed on essential goods along with higher global commodity prices, encouraged local investors to park their extra cash in equity markets in the hope of beating muted real interest rates (as real interest rates plunged to negative territory with inflation touching near double digits).
A much faster recovery in earnings in listed equities too helped Sri Lanka to record over and above Year to Date (YTD) returns. Sri Lanka equities recorded an all-time high earrings of LKR 111Bn in the 3Q’21 a jump of 48%YoY, while 12M trailing earnings grew by a notable 88% YoY. Higher margins, better asset quality helped improve banking and finance sector performance while import restrictions helped majority of the construction sector counters. High freight rates helped the transport sector earnings while pent up demand for essential commodities drove food, beverage, and tobacco sector profits. The rally of IPOs that hit the market with 14 listings raising LKR 13Bn also helped boost the activities.
The rally that picked up in 2H’21, managed to cross the 10,000 mark for the first time on 25th Oct’21, 11,000 mark on 16th Nov’21 and took just 26 working days to cross the 12,000 mark. Improved activities also pushed the average turnover levels to LKR 4.9Bn, a 158%YoY jump compared to 2020. Foreigners meanwhile however continued to be net sellers for the 4th consecutive year with net outflows amounting to LKR 52.6Bn by end of 2021, a jump of 4.5%YoY compared to last year amid fears of macroeconomic concerns.
