Sri Lanka’s capital market is expected to witness a resurgence with the current uncertain political outlook clearing up, following the local government elections on February 10, equity market analysts opine.
According to Strategy Report 2018 published by First Capital Research recently, although market returns will be slow, the equity market is, however, expected to generate returns of 10% to 12%, above the expected earnings performance as some counters are likely to re-rate with expected better earnings outlook in the future.
“The ASPI index is expected to reach 7000 (+10% or +650 points) towards end of 2018. Market returns are likely to accelerate towards 2019 to reach 8000 level (+15% or +1000 points) with the actual earnings performance and renewed investor confidence,” analysts said in the report titled ‘Tough Conditions, but Cautiously Optimistic 2018’.
However, they noted that these targets are highly dependent on the continuity of the current stable outlook and reform agenda during 2018, which in turn will substantially enhance business confidence and consumer demand from the second half of this year.
Meanwhile, speaking along a similar vein, Former President of the Colombo Stock Brokers Association (CSBA), Ravi Abeysuriya said that he is optimistic the bourse will gain momentum as the country is economically getting better with the real economic strategies getting into action.
“I certainly see the market taking off and it is only a question of ‘when’ and not whether it will happen. Business activities are improving, growth momentum is there, FDIs have been increasing and the FTAs are also falling into place. So it all points to the positivity,” Abeysuriya said.
On the other hand, Abeysuriya pointed out that the lack of ‘institutional play’ by State institutions such as the EPF, ETF, SLIC and NSB has hurt the market and therefore, hoped the situation will see a reversal in time to come.
Whilst commending Cabinet approval being granted for the demutualization of the Colombo Stock Exchange (CSE), Abeysuriya said that there is a lot more to happen, such as the implementation of the Central Counterparty system and the Delivery Versus Payment system, two key initiatives to ensure mitigation of risks when trading in Sri Lanka.
“Those things are also on the cards and are expected as soon as the new Securities and Exchange Act is passed in Parliament.
We will also see the derivatives and futures coming into the market and world standards in terms of regulations and licensing of so called Investment Advisors. It is imperative that these things happen to increase the confidence and trust in the capital market,” said Abeysuriya.
It is learnt that the draft law to demutualize the Colombo Stock Exchange is expected to be gazetted in a few weeks, transforming the CSE into a limited company.
At present, the Colombo Stock Exchange is a company limited by guarantee and mutually owned by founder stock broking firms. Following the demutualization, stock brokers who were licensed earlier are to be entitled to shares in the exchange.