COLOMBO STOCK EXCHANGE
– Compiled by Isanka Perera
Q: How is Sri Lanka’s stock market faring amid concerns about a possible recession?
A: The stock market is the barometer of the country’s economic condition. When a nation is experiencing the worst economic crisis it has witnessed, the stock market follows suit. However, we are hopeful that the changes in monetary policy trajectory, fiscal consolidation efforts, and the IMF reform and assistance programme will help improve this situation.
Despite many challenges, the market performed exceptionally well during the last two years. Primarily driven by domestic participants, cumulative earnings for the quarter were around Rs. 286 billion, which was a 134 percent year on year increase. It’s worth mentioning that even though the stock valuation reported a historical low, the benchmarks testify that the price earnings ratio of the market remains attractive.
Q: Could you provide us with an overview of the Colombo Stock Exchange (CSE)?
A: The CSE operates the only stock market in Sri Lanka, and provides a regulated environment where companies and investors can come together.
Currently, we have 294 listed companies with a market capitalisation of Rs. 3.2 trillion. We achieved a high market capitalisation of Rs. 5.5 trillion and the ASPI reached 13,000 points
at the end of the previous year.
We saw healthy turnover levels throughout the previous year and into the first half of this year. However, turnover has declined to an average of one billion rupees a day – around Rs. 3.6 billion year to date – and the ASPI has declined to 7,500 at present.
Q: Why shouldn’t the volatility of the stock market distract investors?
A: The equity market is prone to fluctuating in boom and bust cycles, and those who are drawn to investing in the stock market are the ones who have an appetite for its innate volatile nature.
A common mistake is that people are looking to invest when the bulls reign and sell their assets when it is bearish with the aim of buying them back later at a lower price.
However, the market should correct itself in time to come, bridge the disparities and
create value for investors who act with a long-term perspective.
Q: What’s your take on the way media affects investors’ reactions?
A: Unfortunately, we are in an era where fake news sells – not only in Sri Lanka but globally as well. For an investor, it’s vital to ensure that the market information you capitalise on
Therefore, rather than blindly following the media and abandoning ship, investors need
to be smart and obtain factual information, do their fundamental analysis and make investment decisions accordingly. This will help them make the best decisions on how to manage risk and gain a better understanding of when it is best to enter and exit the trades.
Q: What measures has CSE taken to drive digital advancement in Sri Lanka’s capital market?
A: Together with the Securities Exchange Commission (SEC), CSE formed a digitalisation committee that spearheaded a number of immensely successful initiatives such as launching the CSE mobile application and enabling clients to be digitally enlisted with assistance from the Department for Registration of Persons.
We also introduced the Delivery versus Payment (DVP) settlement mechanism where the traditional T+3 settlement model has been changed to one where settlement is made upon payment receipt. A Central Counterparty (CCP) settlement system, which we hope to launch in mid-2023, is currently being developed to mitigate the risks associated with the settlement of trades for buyers and sellers of securities.
Q: As the incoming Chairman, how do you plan to better serve the funding requirements of companies as the preferred choice for creating wealth and value?
A: With the objectives of encouraging issuers to raise capital through the CSE and widening the investor pool in mind, we will take measures to broad-base the capital market and educate and create awareness amongst the public.
Having a greater representation of the wider economy, “we have diversified our listing as the Main Board, Diri Savi Board, SME Board and a Multi-currency Board to effectively cater to different scales of companies to access capital markets. Given that equity financing is the affordable option for companies to raise the desired capital for their business revival, growth and expansion, we expect more companies to be listed in time to come.
Q: As an investor, why is it important to source relevant information, maintain the right perspective etc.?
A: A strong correlation can be seen between the movement of stock prices and news, and fundamental analysis and investor sentiments that drive the market as a whole.
However, it is advisable to measure market performance by examining related economic and financial factors instead of being led astray by shortsighted sentiments. Selecting the right stock broker is extremely critical since it is the broker who will help clients acquire detailed insights into stocks that will enable investors to make informed decisions about their investments.