Reforms to increase market capitalisation vital
The Colombo Stock Exchange needs to work with all stakeholders
diligently on reforms to increase the market cap to GDP ratio which is
about 30% today to around of 50% of GDP by 2020, a capital market
expert, CFA Candor Group CEO and Director, Ravi Abeysuriya said.
“This is certainly not a stretched target when we compare with
India’s 75% market cap to GDP ratio. With proper reforms, we could reach
around US $ 110 billion by 2020, thus we should have a market cap of
around $ 55 billion by 2020,” he said.
At present, Sri Lanka’s total market capitalisation stands at
approximately US $ 22.7 billion.
Therefore, market capitalisation needs to grow by about 4.4 times
from 2015-2020, for Sri Lanka to achieve the US $ 100 billion target, he
said. According to a Securities and Exchange Commission presentation in
2013, the channels by which the set objective was to be achieved
included increased investments (from foreign and local sources),
increased liquidity in the market, developing the corporate debt market,
developing new products (derivatives and commodity market), growing the
unit trust industry, education and awareness programs. Promoting the
Colombo bourse alone is unlikely to get us there, he said. Currently,
the market cap to GDP ratio stands at nearly 30%.
To achieve the targeted market cap of US $ 100 billion, the GDP has
to reach US $ 200 billion by 2020 from its current US $ 76 billion.
This needs an economic growth rate of nearly 22% annually which is
If Sri Lanka is to achieve a realistic target, concerted efforts of
the government, regulators and market intermediaries and market
participants are imperative to broaden the depth and breadth of our
A Government policy change is necessary in certain areas. “We have to
get Sri Lanka into the MSCI Emerging Market Index, which could be a
major catalyst to attract foreign investors to our capital market.
This can be achieved by listing two large profitable State
institutions and establishing a public float of over 20%. US $ 9.5
trillion in assets is estimated be the benchmark to move into MSCI
indexes,” Abeysuriya said.
When Sri Lanka is in the index, MSCI Emerging Market Index tracker
funds will need to invest in Sri Lanka as they need to replicate the
index. Further, making the Colombo bourse a regional bourse for the
SAARC region would be another catalyst.
Companies in the region could be encouraged to list their debt and
equity in the CSE by promoting the cost effectiveness of listing in the
CSE. Such efforts will move Sri Lanka into the radar screens of global
investors, he said.