Power cut extensions extend CSE’s downward spiral 

• Trading halted twice, for 30 mins each
• Market experts blame it on 10-hour power cut announcement
• Express pessimism about CSE’s future 

BY Shenal Fernando

Circuit breakers at the Colombo Stock Exchange (CSE) were tripped two consecutive times yesterday (30) as investors expressed that they are not hopeful about the future of the CSE owing to the ongoing power crisis, on the heels of the Ceylon Electricity Board (CEB) declaring that the daily power cuts would be extended up to 10 hours, on Tuesday (29) evening.

They also expressed doubts over the authorities’ ability to effectively deal with the crises and noted that any miscalculation in their decisions would only further discourage investments. 

Speaking to The Morning Business yesterday, NP Capital Group Chairman and businessman Nimal Perera and several sources from the broker community expressed their dismay over the prevailing conditions in the country and stated that the fall observed in the market yesterday was expected following the Government’s announcement of a 10-hour power cut scheduled for yesterday.

Trading on the market was halted for 30 minutes on two separate occasions yesterday after the circuit breaker was tripped within a few minutes of the market open, when the Standard and Poor’s Sri Lanka 20 (S&P SL20) index fell initially by 5.0% at around 10.38 a.m. and subsequently when the S&P SL20 index fell by 7.5% at around 12.13 p.m.

This marked the second consecutive day during this week where trading in the CSE was halted due to the tripping of the circuit breaker in terms of the Securities and Exchange Commission of Sri Lanka (SEC) directive dated 30 April 2020.

According to Perera, he doesn’t expect an improvement in the financial markets, including the CSE, any time soon, until the Government provides an effective remedy to the current economic crisis and the resulting fuel shortages and power shortages in the country. Moreover, he expressed that he can see no silver lining to the current crisis.

Explaining further, he said: “Traders are scared and are trying to sell and recover what they can, considering the way the rupee is depreciating. The rupee has already depreciated by over 40% due to the blunders of the Central Bank of Sri Lanka Governor. He promised that he will not devalue the rupee, but within a week from making this statement, he floated the exchange rate and the rupee crashed. People are now panicking because they don’t trust this Government which is unable to keep its promises.”

According to sources from the broker community, the primary factor for the current haemorrhaging observed in the market is the fuel shortage and the power cuts. However, they further pointed out that the collapse of the market may have been exacerbated by margin calls coming in, ironically due to the fall of the market. 

“Therefore, in this kind of a situation, all stocks, whether good or bad, will be sold by traders to settle their positions held on margin. Therefore, the correction can continue,” disclosed a source.

Commenting on the possibility of a recovery, sources disclosed to The Morning Business that market sentiment will be key going forward, and claimed that recovery will depend on whether the Government will make an effort to make effective changes to address public sentiments.

By the close of the day, the S&P SL20 index was at 3,196.19 points down by only 141.84 points (4.25%) from the previous day’s close of 3,338.03 points. This represents a considerable recovery from the intra-day low of 3,027.08 it fell to after trading commenced following the second circuit breaker.

Similarly, by the end of the trading day, the All Share Price Index (ASPI) had fallen by 352.66 points (3.66%) to 9,294.89 points from 9,647.55 points. Initially, the ASPI fell by around 722 points to an intra-day low of 8,924.63 before 12.30 p.m. before recovering by over 370 points over the next two hours.

By the end of the day, which saw a turnover of Rs. 3.3 billion and over 164.8 million shares traded, the market capitalisation of the CSE had fallen to Rs. 4.0 trillion which represents a year-to-date (YTD) fall of around 27.6%.