CSE takes off on tax cuts, corporate earnings

With corporate earnings showing tremendous growth (especially in the banking and leisure sector), stocks started the week on a strong note. On Tuesday, the government announced massive import tax reductions, thus giving a further boost to the market. The week ended saw the ASI index of all shares close at a fresh high of 4354, a gain of 2.4% or 100 points for the week. The MPI, which tracks the 25 most liquid stocks in the market, saw a rise of 207 points, or 4.4% to finish off at 4968. Turnover for the week hit a new year high at Rs 18 billion, with Rs 9.5 billion of it coming on Wednesday. Of this, Rs 5.9 billion came when DFCC Bank disposed a 10% stake in its associate Commercial Bank of Ceylon to a Singapore-based fund of SBI Holdings of Japan. What started life as Softbank Investment Corporation of Japan in 1999, through acquisitions and mergers, is now SBI Holdings Inc; with interests in banks, fund management, stock brokering, real estate investments and retail banking. With this deal, DFCC Bank will stop equity accounting for Commercial Bank, as it will now have less than 20% of Combank. While the deal was brokered at Rs 250.00 a share, Commercial Bank closed the week at Rs 266.75 (a gain of Rs 17.50 for the week), DFCC Bank closed at Rs 250.00, up Rs 47.00 for the week. Total foreign purchases for the week was Rs 7.4 billion while total foreign sales was Rs 3.1 billion with a net foreign inflow of Rs 4.3 billion.
The other big corporate news was that Confifi founder Prof Furkhan sold out of Confifi Hotel Holdings and Riverina Beach Hotel this week at the same prices paid by LOLC Securities to the minority shareholders last week. In a hostile bid, LOLC Securities bough out a 43% stake in Confifi Hotel Holdings and a 20% stake in Riverina Hotel last week. This week, Confifi Management Services (the Furkhan family holding company), sold out to the 30% it held in Confifi Hotel Holdings and the 24% it held in Riverina Hotels at Rs 210.00 and Rs 110.00 per share respectively.

In what was a move it felt was long overdue, the government cut taxes in a bid to boost revenue and stimulate the economy. The government on Tuesday announced the reduction of vehicle taxes by as much 50%, abolishing the duty on imported electronic items. With this, vehicle importing companies such as Dimo and United Motors will benefit. Financial institutions engaged in leasing and retail banking will also see a growth in vehicle credit. With taxes at some levels as high as 500%, Sri Lankans imported less than 6,000 cars in 2009. Thus the government’s agenda of raising revenue was scuttled, impacting on the productivity of the nation. The aging vehicle fleet in the country meant more repairs, more pollution and less business. While duty is still high at over 100%, the government is expected to announce further reductions in the budget for 2011 which is to be presented in 2011. On the other hand, the reduction in import duty will mean a tremendous boost for companies such as Brown and Company and also Singer Sri Lanka, which import and retail electronic products. This will adversely affect local assembly plants such as the ones run by Aban’s Electricals. The banking sector, which has paid taxes as high as 60% in the past is expecting a cut and rationalisation of its tax structure, rose for the week as investors chased after stocks. The positive momentum is expected to continue in the weeks ahead.

- Stock Market Correspondent