Sri Lanka prospects bright for rapid economic growth
by Ajit RANADE
The Sensex is a big brand, which celebrates is 25th birthday today.
It is an index, calculated as an average of 30 prices of stocks listed
on the Bombay Stock Exchange. These are 30 largest companies, and the
average price is taken by adjusting for their respective weights. The 30
companies used in the Sensex today is different from the 30 companies
few years ago, because the league of the top 30 keeps changing. Indeed,
only 11 of the original 30 from 1986 remain in the Sensex today.
You can choose to invest in any of those individual companies (the
so-called ‘large cap stocks’) or you can invest in the Sensex directly.
If you had invested Rs. 100 in Sensex one year ago, it would have become
Rs 180 today. If instead, you had invested in gold, then your investment
would have risen only by 25 per cent.
The Sensex has soared by 80 percent, it’s highest single year rise
since 1991, and among the biggest gainer in stock markets all over the
world. India beat China in this race during 2009. However, the stock
market, which beat everybody, was from neighbouring Sri Lanka, whose
all-share index (not just 30 stocks) rose by 125 per cent. Colombo’s
performance was the world’s best, thanks to foreign inflows, declining
inflation, lower interest rates and outlook for stability. Sri Lanka is
expected to reap a peace dividend after the defeat of LTTE, and the end
of a virtual civil war for the past 25 years.
The country will elect a new President on January 26, and then vote
for a new Parliament in April. The Sri Lankan system of government is a
mixture of presidential (American) and parliamentary system (Indian),
with the President being answerable to an elected Parliament. However,
the former can dissolve the latter! There are 22 candidates in the fray,
with two leading contenders being incumbent President Mahinda Rajapaksa
and former Army chief General Sarath Fonseka.
The promise of the peace dividend might favour the incumbent
President. If the incumbent government led by Rajapaksa comes back to
power, it will be a repeat of the UPA victory in India’s parliamentary
elections in May, 2009.
Sri Lanka’s elections are as colourful as India’s, so expect much
cacophony and noisy campaigning. Whatever the outcome, the outlook for
the economy is bright. The North-Eastern Tamil-dominated area will need
massive reconstruction and investments. Unfortunately, wars lead to
destruction, and then to economic revival. Elsewhere too in the economy,
tourism, fisheries, agriculture and services are expected to grow twice
as fast this year.
The Lankan currency is also strengthening, and remittances are
growing too. If you invested in Lankan government bonds last year, you
would have made a safe return of at least 20 percent. Of course, the
risky Colombo Stock Market would have given you 125 percent.
Lanka has very high literacy and relatively better healthcare. Its
population is only two per cent of India, while the economy is four per
cent. Were it not for the terrible two-decade long civil war, it could
have been a tourism haven like Bangkok or Hawaii, and a logistics hub in
South Asia rivalling Singapore.
As it makes its slow climb, its prospects are bright in the coming
years. It enjoys a free trade pact with both India and Pakistan, so that
goods and investments can flow freely in both directions.
The Chinese are keen to get a foothold in the island nation, and it
behooves us not to let go of our geopolitical and cultural advantage. At
Kotla we had a fiasco, whereas in Colombo the pitch is just right.
Courtesy: Mumbai Mirror
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