CSE spurs capital market growth

The conducive market environment in Sri Lanka helped boost the Colombo Stock Exchange (CSE) making it the best performing stock exchange in the world, said Director, Securities and Exchange Commission of Sri Lanka and Senior Lecturer, University of Sri Jayawardenepura, Dr. Dissa Bandara.

Dr. Bandara was addressing a public lecture on `Post War Capital Market in Sri Lanka and Future Prospects’ at the Centre for Banking Studies on Thursday.

He said the CSE reached the summit of performance spurred by the highly favourable business environment created following the end of the battle against terrorism last year.

“Revived investor confidence played a crucial role for CSE to achieve the feat which has positioned the country on top of most leading stock markets in the world”, Dr. Bandara said.

Both indices performed well with all time high records encouraging more local and foreign investors to enter the market. The All Share Price Index (ASPI) which was 2216 points as at May 2009 increased to 4237.6 points in May this year. The Milanka Price Index (MPI) increased from 2721.6 to 4757.4 during the same period.

Market capitalisation increased from 775.40 mid last year to 1380.20 this year and the number of transactions rose from 170154 to 210697.

Dr. Bandara said that though the capital market is at its peak in performance, awareness of the market and the participation is low compared to many countries. According to a study it is less than one percent of the population that is involved in the capital market which implies that over 90 percent of the market is dominated by a few.

“Benefits of the capital market will not trickle down to all sectors due to the low participation.

People are hesitant to enter the capital market due to the lack of understanding of the risk reward aspect of the market”, Dr. Bandara said.

People are confined to the traditional banking system and are satisfied with the return they get for their hard earned money. Safety has been their primary concern and not the return on investment.Over 75 percent of the population transact with the banks.

“No bank in Sri Lanka deals with capital market activities. In developed countries the capital market is two to three times larger than the banking sector”, he said. The number of new listings and broking houses at the CSE is increasing. Four companies have been listed this year and the number is expected to rise to around 10-15 by the end of the year.

Of the 12 applicants five companies have been short listed for stock broking licenses. “There is immense potential for the expansion of the capital market with more rural penetration and awareness created on the long term benefits of a rewarding market”, Dr. Bandara said.

Those who wish to enter the stock market could open a Central Depository System (CDS) account and transact through the CSE branches in Matara, Kandy, Kurunegala, Negombo and Jaffna.

LF