The Sri Lankan Capital Market would reach at least US$ 50 billion within the next four years (2018) or even earlier, said Securities and Exchange Commission (SEC) Chairman, Dr. Nalaka Godahewa.
Making the opening remarks at the Colombo Stock Brokers Association (CSBA) workshop for Investment Advisors at Excel World he said that in most of the regional countries the market capitalization was as high as 70% of the GDP. “It is a known fact that in any country when the macro economy grows the Capital Market follows suit and Sri Lanka would be no exception.”
“Market capitalization 10 years ago was only 1/3 rd of today’s value. So the market has grown. Average daily turnover has more or less doubled during this period. Whilst turnover has grown the equation of average daily turnover to Market cap is only 0.03. This value is inadequate when compared to most of our regional counterparts.”
According to a report by Daily News, the SEC Chairman said that when foreign investors look at Colombo Stock Exchange (CSE) today they see an opportunity in an undervalued market. “Market Cap to GDP of 30 % means there is a lot of potential for this market to grow. The forward P/E is only 11.7 times. It is lower than most other global markets so it’s the right time to buy.”
“Sri Lanka’s economy is on a growth path and the listed companies in most industries are likely to do well. CSE has a little correlation to other global markets so investing in Sri Lanka is an opportunity for fund managers to diversify their risks. That probably is why foreign buyers contributed almost 40% of last year’s trading activities. This also means that our local investors are not exploiting the opportunity yet.”
“After 30 years of conflict, we are living in one of the most exiting periods of the history of our country. All economic indicators are currently showing steady progress. I believe that as investment advisers, you are lucky to be in the right place at the right time, the Chairman said.
We all know that the capital market is a vital contributor to any fast developing economy. It is the main channel through which the savings and funds available with retail and institutional investors are mobilized for long-term capital formation. Even though our current market capitalization is only about 30% of the GDP, the capital market is destined to play a significant role shaping the future of our economy.”
Commenting on what the regulator has done over the last few years he recalled that in 2012 the SEC launched a number of initiatives aimed at structurally and functionally upgrading the market.
“These include initiatives to develop the market infrastructure, initiatives to strengthen regulatory framework, initiatives to attract foreign funds through offshore promotions and also encourage more listings in the stock market.”
He said that initiatives were also taken to promote the corporate debt market, enhance product portfolio, increase market liquidity and moves to protect minority shareholder interests. “Initiatives were also taken take action against errant directors who seem to be misappropriating funds of listed companies.”