Credit extension fails to cheer Colombo bourse
View(s):Lifting of credit restrictions this week failed to cheer the Colombo share market which fell for four straight days this week, raising questions as to whether analysts got it wrong in saying earlier that lack of credit is a serious problem
Tushan Wickramasinghe, Managing Director/CEO of Capital TRUST Securities (Pvt), among those who pushed for more credit, however on Friday noted that the removal of credit restrictions on brokers was requested not to push the market but merely to correct the anomalies in the rules. It would also provide more credit facilities to small investors who can’t access bank finance, he said.
Murtaza Jafferjee, CEO JB Stockbrokers told the Business Times that in a situation where both the economic growth and the earnings growth have dropped, the credit relaxation by the Securities and Exchange Commission
(SEC) won’t compensate for the cost of interest on the credit given. “If credit was extended for free (hypothetically), then it’ll be fine, but that’s not the case.” He noted that the market will display a ‘yo-yo’ and be sideways for sometime.
Another analyst said that the market has been down for the most part of this year and it’s wrong to assume it had anything to do with credit. On Friday share prices picked up.
“When new SEC chairman Nalaka Godahewa took over (in end-August), the market was up by 15-20 per cent as the sentiment had improved. He actually did nothing, but the (price) surge was purely driven by sentiment,” he said, noting that this clearly shows that the CSE’s drop during the past had in fact ‘nothing’ to do with extending credit.
“The market was undervalued for a while and it required a catalyst. With foreign buyers coming in, it got activated,” a stockbroker said.
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