Capital Alliance (CAL) notes that investors are facing a transformed economic landscape that demands strategic adjustments to their investment portfolios.
A recent financial literacy session conducted by CAL, its Chief Strategist, Udeeshan Jonas, noted the fluctuation in treasury bond rates arguing that it would be favourable for investors to lock in the current high interest rates. The volatility observed in the financial markets around the elections was notable, with treasury bond yields on a five-year instrument spiking to nearly 14% before settling back to around 11.9%. The equity markets mirrored this trend, where the index surged pre-election to 12,500 points and then dropped to about 10,500, only to partially recover post-election to around 12,000 points. This fluctuation underscores the delicate balance investors must manage in a politically responsive economic environment.
CAL’s financial literacy program also provided an analysis of the government’s fiscal strategy.
“Sri Lanka aims to achieve a primary surplus of 2.3% of GDP by 2025. This year, we anticipate the primary surplus to be between Rs 800 to 900 billion . Increased revenue will primarily come from vehicle taxes and possibly rental imputed taxes, with an expected improvement in collections estimated at about 300 billion rupees.”
“However, the tax incentives and salary increases outlined in the government’s manifesto will result in a revenue loss of approximately Rs 286 billion . Despite these losses, the government will still reach a primary surplus of about 900 billion rupees by the end of 2025, which comfortably exceeds the IMF’s target of 2.3%.”
For investors, the current environment presents a mix of challenges and opportunities. The CAL sessions pointed out that treasury bonds and debentures are becoming increasingly attractive due to their higher yields compared to bank deposits. For example, while bank deposit rates hover around 7.5 to 8%, treasury bonds offer rates between 11.85 to 12%, presenting a favorable risk-free investment option in a still volatile market. (TP)