Sri Lankan stocks fell over 1.3 percent, hitting a more than two-week low on Monday, led by a fall in banking stocks due to a long overdue technical correction.

Sri Lanka’s stock index was down 1.36 percent, or 99.51 points, at 7,221.49 by 0605 GMT.

“It’s a free fall, today the fall is led by banking and large cap shares,” said Dimantha Mathew, manager, research at First Capital Equities (Pvt) Ltd.

The market saw 526.9 million rupees ($4 million) worth of foreign selling in stocks during the last three sessions through Friday.

First Capital Research in a note to investors said they expect selling pressure to continue for the next few days mainly stemming from large cap counters.

“We reiterate that investors should take the decline in the market as a good opportunity to collect value counters focusing mainly on the manufacturing sector.”

Turnover was 862.16 million rupees, with 67.9 million shares changing hands.

The rupee currency traded weaker due to dollar demand for stock related outflows and importers, while dealers said the forward trades were active as banks were hesitant to trade the local currency above 130.40.

The spot currency was quoted at 130.50/55 per dollar at 0609 GMT, compared with Friday’s close of 130.40/50. Dealers said the spot rupee did not trade as banks were reluctant to trade beyond 130.40 level, at which the central bank had intervened in the recent past through moral suasion.

However, the three-day forwards or spot next, which was actively traded in the absence of spot trade, was at 130.52/60 per dollar, slightly weaker from Friday’s close of 130.50/60, dealers said.

“Nobody is trading above 130.40 and forwards picked up,” said a currency dealer asking not to be named.

The central bank in the last week of September limited the spot currency range to between 130.40 and 130.50, to prevent any sharp falls amid heavy selling in stocks and pullback by foreign investors from government securities.

Currency dealers expect the rupee to weaken due to sustained selling by foreign investors in government securities, which are already at multi-year lows, rising imports in a low interest-rate environment, and strengthening of the dollar globally.

However, Central Bank Governor Ajith Nivard Cabraal at a Reuters Global Market Forum on Monday said, “There would be a greater tendency for the rupee to appreciate gently in the light of the improvements in the external account.”

Overseas investors sold a net 4.23 billion rupees ($32.44 million) in government securities in the week ended Oct. 7, after selling 16.9 billion rupees worth of government securities in the previous week, data from the central bank showed. – Reuters