The Colombo Stock Exchange (CSE) is expected to see foreign investor activity pick up in the medium to long term with a boost on the domestic investors should the stability in the economy be sustained at current levels.
However, key analysts observed that the CSE requires improvement on certain key areas such as increased liquidity in the market, interest rates, boost through assistance on the IMF loan arrangement, macro and micro economic situation and stability in the currency in a bid to maintain its attractiveness to both domestic and foreign investors while at the same time a market correction is also required.
Domestic activity on the other hand has effectively led to the boost at the CSE which has improved markedly post-war. This is expected to improve based on the local market conditions in the face of the prospective outcome of the IMF loan that will increase infrastructure development in the country. This has been considered to be a pre-requisite currently failing which the Sri Lankan government is expected to turn to increased funding from Asia particularly from countries like China, India, Cuba and Iran in a bid to boost stock market activity and sustain the rupee at current levels.The All Share index shot up by 59.1% for this year while the MPI went up by 64.4% with turnover topping at Rs.50.6 billion upto yesterday, the CSE stated.
The post war figures alone indicate a remarkable boost at the stock market in Colombo that indicated a boost by 25% in the ASPI while MPI went up by 30%.
Meanwhile, turnover figures indicated that from May 18 it had gone up to Rs.28.5 billion.
The market had been averaging at Rs.26 million per day upto May 15 but now it has gone upto Rs.422 million.
The market cap also had gone up by Rs.141 billion. The contribution by foreign companies in June has accounted for 26.3% of the total market turnover and foreign individuals’ contribution has accounted for 2.7%.
Local companies’ contribution accounted for 34.4% of the total market turnover while local individuals’ contribution accounted for 33.6%, according to data released by the CSE.
Inspite of these figures there has been a clear net foreign outflow of Rs.286 million with the last one month witnessing more domestic investors generating interest in the stock market.
Equity Stockbrokers MD/CEO Deva Ellepola speaking to the Daily Financial Times said that new investors are currently taking a “deeper look at the macro and micro situation” in the country and they would be looking at the profitability of the companies in 2009.
With expectations of the economy to bounce back based on the IMF arrangement to be used for infrastructure development which is currently not on the cards mainly because analysts feel that IMF wants to set out certain conditions for which the government believes is not the “opportune time” to carry out these.
The “cautious optimism” among investors in respect of the companies in the market in the wake of the Lanka Marine Services case and the reversing of the sale of the Sri Lanka Insurance Corporation (SLIC) and certain other ventures that will be examined has left room for “sceptimism because whether they are partly to be blamed for jeopardizing” the situation with the government of the day.
“If one was to increase liquidity in the market by investors by leveraging on the existing portfolios they can borrow and trade for that the borrowing cost should be correspondingly lower to enable borrow and invest,” Mr. Ellepola said.
The analysts observed that there needs to be market correction but this has been debated in the face of the current scenario. The index can correct itself accumulatively to about 10% of ASPI.
“We have to improve on our liquidity and have new listings,” Asha Phillips Director/CEO Dimuthu Abeysekara said adding that the government is “on the correct path” by asking the companies to quote on the stock market. He noted that in terms of liquidity this was an essential requirement as “we are a small market” and out of that liquidity wise currently there are only about 10-15 companies like JKH, Dialog.
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