COLOMBO: Sri Lankan stocks and the rupee fell on Tuesday as floods and landslides that killed over 180 people weighed on market sentiment, with investors awaiting further information on the impact of the disaster, analysts said. The extent of the damage due to the floods is yet to be assessed, with Sri Lanka’s main agricultural exports – tea and rubber – hit by the worst torrential rains in 14 years. Authorities warned of more rains and landslides on Tuesday as cyclone “Mora” formed in the Bay of Bengal.
The floods would have an adverse impact on agricultural exports, putting pressure on the rupee, currency dealers said, while analysts said there could be an immediate negative impact on the hospitality and manufacturing sectors. “Short-term disruptions in rubber tapping and distribution difficulties with tea could lead to production dwindling. However, it is too early comment since the actual extent of economic damage is not known,” Danushka Samarasinghe, chief operating officer at Softlogic Stockbrokers, told Reuters. “Retail trade would get affected, but on the flip side demand for FMCG would rise with the increased humanitarian support efforts. Hopefully, once the current situation comes under control, there could be increased demand for the construction sector.” A short-term spike in inflation could materialise specially due to crop damages and distribution difficulties with regard to fresh food produce and staple food items such as rice, he added. “The impact on the insurance sector could be too early to ascertain though based on news reports it may not be as damaging as last year,” Samarasinghe said. Rupee forwards <SLKR> were active on Tuesday, with spot-next forwards trading at 152.90/153.00 per dollar at 0634 GMT, compared with Monday’s close of 152.80/95.
“The demand (for dollars) is there and (dollar) conversions are very less,” a currency dealer said. The floods could also pressure the overall GDP and government budget deficit with high infrastructure spending, dealers said. The rupee has been under pressure after the central bank governor on May 18 said the bank would allow gradual depreciation of the currency, they said. The spot rupee <LKR=LK> did not trade on Tuesday. The central bank fixed the spot rupee reference rate at 152.50 on May 5. Foreign investors bought a net 14.6 billion rupees ($95.61 million) worth of government securities in the two weeks ended May 24. They have sold a net 42.1 billion rupees worth of securities so far this year. Sri Lankan shares <.CSE> were down 0.52 percent at 6,644.85, as of 0638 GMT. Turnover stood at 104 million rupees.
