Sri Lankan shares rise to near 11-mth closing high; credit growth a concern

COLOMBO Thu May 8, 2014 7:45am EDT

COLOMBO May 8 (Reuters) - Sri Lankan stocks rose on Thursday to a near 11-month closing high as foreign inflows and a lower interest rate regime helped boost sentiment, but the lack of credit growth has raised concerns over earnings of listed companies, stockbrokers said.

The main stock index rose 0.37 percent, or 23.13 points, to 6,275.73, its highest close since June 11. The day's gain boosted the market capitalisation by 9.69 billion rupees to 2.63 trillion rupees ($20.14 billion), led by large caps.

"We see retail investors coming into the market due to the current lower interest rates and activating their inactive accounts," a stockbroker said on condition of anonymity.

"But lower credit growth has raised questions over growth and earnings. Still the consumer spending is low and that is why we don't see companies borrowing and expanding."

Some traders are speculating about another reduction in the central bank's key interest rates if credit growth remains sluggish.

Despite a multi-year low interest rate regime, private sector credit grew 4.4 percent in February from a year earlier, the slowest expansion since May 2010. That compared with growth of 5.2 percent in January and 13.3 percent in February 2013.

The day's turnover was 935.2 million rupees ($7.16 million), less than this year's daily average of 968.9 million rupees.

Foreign investors were net buyers of 137.8 million rupees worth of stocks on Thursday, but they have been net sellers worth 6.8 billion rupees so far this year.

Shares of Nestle Lanka PLC rose 2.32 percent to 1,985 rupees, while Bukit Darah PLC rose 2.8 percent to 629.80 rupees.

The market gained 4.28 percent in April as some retail investors started buying risky assets across the board as the central bank kept policy rates steady at multi-year lows for the third straight month. ($1 = 130.6150 Sri Lanka Rupees) (Reporting by Shihar Aneez; Editing by Anupama Dwivedi)