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DateLine Sunday, 3 August 2008

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Lanka's capital market resilient

Despite the war and other market conditions Sri Lanka's capital market has been resilient and had performed well during the five-year period ending 2006 with an average growth of 35.2 per cent, said CEO HNB Stockbrokers (Pvt) Ltd., Deva Ellepola.


Deva Ellepola

He said Sri Lanka's stock market has been performing remarkably well despite adverse global and local market conditions. Sri Lanka's stock market may have been among the top five stock markets in the world.

The All Share Price Index (ASPI) set twin records though the index was down by 6.7 per cent last year. The New Capital raised from the stock market last year increased to Rs. 44.6 billion compared to Rs. 4.6 billion in the previous year which is an 869 per cent growth.

The Net Foreign Investments increased to Rs. 11.2 billion last year compared to Rs. 5.3 billion in 2006 which is a 109 per cent increase.

Ellepola said despite the volatile security situation in the country the value proposition offered in terms of the New Capital that was raised from the stock market and the net foreign investments recorded a growth.

Though the capital market has been very much resilient to internal and external shocks it does not mean that the market will not be subjected to a correction because we have had a continuous growth during the five-year period ending in 2006", he said.

The capital market has dropped by 5.2 per cent to date after a five-year growth. After a six-year run a market can reach a point of fair value.

He said the market will not have a substantial growth for the rest of the year due to global economic and political conditions but will remain volatile with buying opportunities for investors if the market corrects itself from the current position.

The economic, political and geographic conditions have an impact on the the movement of the stock market. Interest rates, inflation, oil prices, weather and currency rates are macro economic factors that affect the capital market.

Wages, strikes, crop failure, and price of raw materials are micro factors that influence the movement of the market. There is a direct core relation between the performance of the stock market and interest rates prevailing in the country.

When the ASPI grew by 38.7 per cent in 2001 the interest rate was 13.7 per cent and last year the market dropped due to the rise in interest rate (Treasury Bill rate) to 19.96 per cent.

The capital of a company is represented through shares and a person who owns shares has a percentage of the stake of the issued capital of the company.

When there is adequate profits the Board of a company can decide to distribute the profits in the form of a dividend which is a rupee value paid to the shareholder based on the number of shares he holds.

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