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Little budget cheer for S.Lanka stocks

COLOMBO: Sri Lankan brokers are not betting on Monday's budget to bring them much cheer, though stocks may get a much needed fillip from improved quarterly corporate earnings due out over the next few weeks.

"The budget won't be a market director. The interest is more on corporate earnings news," said Lasantha Iddamalgoda of CT Smith Stock Brokers.

Some analysts expect Monday's budget for the fiscal year to December to be election motivated.

Others said the government would take measures to contain its high budget deficit instead of offering sops ahead of parliamentary elections due by August.

Incentives are not expected to be offered to kickstart the ailing stock market, traditionally reliant on foreign funds, for direction.

"To improve investor sentiment they don't have to be given concessions, they need focused economic direction," said Sanjeewa Maddumage of Jardine Fleming HNB Securities.

"If investors are happy with the budget, the most we might see is more widespread local buying in the market," he said.

After being Asia's only stock market to fall in 1999, Colombo's key all share index .CSE has lost nearly 20 points, or 3.5 percent, this year amid foreign sales of blue chips.

Despite some local funds mopping up the foreign sales at discounts, retailers have only been bullish on estate shares.

On Friday the all share index closed 0.6 percent lower at 557.77 points in the absence of foreigners, but local investor interest in plantation shares on expectations firmer tea prices will revive profits, lifted the sector index up 2.5 percent.

"With maybe some movement from the budget and earnings-specific gains, I see the market climb about 10 points (over the week)," said Mevan Dimbulana of W.I. Carr/Asia Securities.

"If key blue chips post good earnings, we might even see local funds willing to pay more," Dimbulana said.

Corporate earnings for the quarter to December 1999 are due over the coming weeks.

Analysts see conglomerates with exposure to plantations posting improved earnings, while consumer-related firms will also show stronger profits from a pick-up in economic activity.

But banks, heavyweights in the blue chip Milanka index, are expected to see sluggish earnings from squeezed margins.

Brokers said foreign funds, quiet since the Chinese New Year holidays, may only watch the budget for its long-term implications for the economy.

"We may not see foreign activity soon after the budget," said Dimantha Kohombanwickremage of NDBS Stock Brokers.

"So what is worrying is that even if companies post good results, blue chips may not move in the absence of foreign buying."-Reuters