YEAR IN REVIEW Despite challenging conditions on multiple fronts in recent years, the Colombo Stock Exchange (CSE) has boasted rapid growth and achieved record breaking milestones.
In January for example, the stock exchange reported the highest number of trades in a single day – which amounted to more than 60,000 – and its highest market capitalisation at the time of Rs. 3.4 trillion. Moreover, the CSE recorded an average daily equity turnover of more than four billion rupees for the year.
By the end of September, the benchmark All Share Price Index (ASPI) had risen to nearly 9,460 whereas the S&P Sri Lanka 20 (SL20) index – which measures the performance of the 20 largest and most liquid companies in the local equities market – had breached the 3,500 mark.
The market turned bullish in October with investors trading in anticipation of improved corporate earnings despite the impact of the pandemic, leading to the ASPI crossing the 10,000 mark during the month.
Market capitalisation amounted to just over Rs. 4,215 billion by the close of September, reflecting a 20 percent uptick compared to end June. And this upward trend continued, with the CSE surpassing 5,105 billion rupees at the end of November – registering a growth of 12.7 percent over the previous month.
Despite the pandemic and other eco- nomic challenges undermining performance at times, the ASPI and SL20 continued to be in “positive territory,” according to CSE Chief Executive Rajeeva Bandaranaike.
By the end of the second quarter of the year, a turnaround was expected on the back of an upward re-rating of the market, new investors, low interest rates, listed entities performing better than expected and an expected boom in corporate profits in the coming years.
Meanwhile, the stock market generated a turnover of over Rs. 330 billion in the third quarter of the year (that’s more than twice as much as in the second quarter) including 316 billion rupees from domestic sources, realising a daily average turnover of close to Rs. 5,300 million.
The bourse recorded more than two million trades in the July-September quarter (versus 1.2 million and 1.9 million in the preceding two quarters). And when it comes to shares traded, this numbered in the 15 billion plus region for the quarter ended 29 September, which encompassed 15.3 billion and 392 million domestic and foreign shares respectively.
In August, the CSE introduced the delivery versus payment (DVP) settlement mechanism, which it described as the “most meaningful” change to its trading infrastructure in several decades.
Furthermore, it stated that the mechanism is “an essential part of the CSE’s road map to modernise and mitigate settlement risk while also enabling new products on the exchange.”
Calendar year 2021 also saw a number of companies vying to list on the CSE as a result of tax incentives outlined in Budget 2021. With a number of equity and debt IPOs taking place during the year, the stock exchange raised more than 75 billion rupees in capital from both activities in the first seven months of the year.
MARKET UPDATE On the 8 September episode of LMDtv, a Director and the CEO of First Capital Holdings Dilshan Wirasekara expressed his views on the market’s potential: “Our capital markets have been undervalued in the last four to five years, which obstructs companies from obtaining the valuations they deserve.”
However, he acknowledged that the situation has improved, noting that “with valuations increasing, we’ve seen (SEC) and stock exchange introducing new initiatives, and different classes of products – he anticipates that Sri Lanka’s IPO prospects are bright given also that some state owned entities are also looking to be listed to enlist investors.
In LMD’s keepsake edition The Brand encourage more investors and corporates to participate in the market.
Apart from this, the new Securities and Exchange Commission Act along with the proposed demutualisation of the exchange is expected to strengthen investor confidence, while enhancing its regulatory and governance framework. GOING FORWARD Despite the fallout from the pandemic, the last two years have proved to be positive for Sri Lanka’s capital market with several milestones being established.
At the Invest Sri Lanka investor forum organised by the SEC and CSE, Fernando noted that compared to emerging and frontier markets, “the Sri Lankan stock market is undervalued in relative terms by 20-25 percent.”
Given this, he pointed out that there would be a ‘reasonable upside’ for those looking to participate in the market.
However, the stock exchange’s performance in the new year will likely hinge on the effectiveness of efforts to restore confidence in the country’s economy which as we know, is facing numerous challenges – as well as reforms and initiatives to modernise and broaden the CSE’s offering.