Vibrant stock market indicates booming economy

by Shanika SRIYANANDA

The Colombo Stock Exchange (CSE) has created a history by becoming the world's second best performing country after Peru and the best stock market in Asia. The market capitalization of the CSE crossed Rs. 1 trillion (Rs. 1,000 billion).

In a interview with the 'Sunday Observer' Channa de Silva, Director General of the Securities and Exchange Commission of Sri Lanka which is the governing body of the CSE said that it was a new era for the country and the need was to promote local entrepreneurs to take the lead.

Channa de Silva, Director General ,Securities and Exchange Commission

Following are the excerpts of the interview:

Q: With the outstanding performance of the CSE and can you explain the present situation of the Stock Market (SM)?

A: The local investor participation is 100 percent after defeating terrorism. They are confident. All the investors in the stock exchange come under our purview and we are controlling 21 brokers and intermediaries including credit agencies and fund managers.

This is an important sector as one third of the economy gets reflected in the stock market. It is also a good parameter for the government or people to see how the country is performing.

Q: In which way will this achievement benefit the country?

A: This is a moment that Sri Lanka is turning its texture from a caterpillar to a butterfly. I see this as an interim period. Some people still see Sri Lanka as a caterpillar as the 30-year long war has turned us in to a caterpillar.

But we have suddenly changed into a butterfly after the war. This marks a new era for the country. This butterfly will lead to a new era. The local investors will soon understand this change and will flock around the butterfly.

Q: What would be the response from foreign investors?

A: The foreign investors are observing the interest among the locals to join the SM and when they see the local investors coming in, taking the shares and the SM booming, these good indicators will naturally attract the foreign investors. The other point is that when the local investors are coming forward, the foreign investors know that the environment is conducive to investment. The international investors will realise that there are lots of potential and opportunities in Sri Lanka after defeating terrorism.

Q: Before setting the ground for the international players to come in what are the facilities for the locals to get more benefits?

A: Yes, we have to see that local investors are benefitted first. When they come to the SM they should be richly rewarded.

The SEC has changed certain things to facilitate these businessmen. Unlike earlier they can come directly to us. There are two main boards now.

Earlier to come to the main board they needed to have a track record of three years of profitability. then they needed to have share capital of Rs 75 million.

But we introduced certain changes and re-introduced the second Board as the 'Diri Saviya Board'. Here the requirements are different. Instead of Rs. 75 million issued share capital requirement, now it is only Rs. 35 million. This is very effective as even small businessmen can come in. Secondly the three year track record is not required now. Therefore, even the new companies can come in.

I also think that Sri Lanka is looking very positively and needs to support not only those companies which are there for a long time but also start up like individual and starting companies. We are looking at the possibility of providing a good platform for them to raise funds directly from the SM.

There is now a lot of interest from the companies and there is a requirement for us to bring bigger companies to the list. For them also still their borrowing cost is hanging around 20 percent.

Q: Does this achievement really reflect on the economy?

A: Yes, there is a trend for new companies to come in. The need of the hour is the state support for the companies to join the SM, if not the foreign companies will come here and the locals have to work under them.

So the government and the policy makers should facilitate the local entrepreneurs to join the SM. Their hands should be strengthened.

One of the main requirements is facilitating them to find the capital. The inflation is less than one percent but one cannot take a loan from a bank for an interest less than 20 percent.

Q: What are the main reasons that contributed to this victory?

A: It is mainly peace. The other is the significant drop in the borrowing rates of the banks. Earlier, it was 18 percent but dropped significantly and this is compelling a lot of investors to move from the banking sector to the SM.

As the banks are paying low interest for their deposits, they did not rely on the banking system and they came the SM to invest.

Q: In which ways can the government help the local investors to make the SM more vibrant?

A: It is time for the policy makers to encourage the entrepreneurs to come in because it is a period that there is a window of opportunity to strengthen the hands of our entrepreneurs. If we don't do so there will be international entrepreneurs coming in to start business and all Sri Lankans have to work under them as employees.

Mainly they need access to finance. With high borrowing rates, today's businessmen face lots of challenges. Compared to Sri Lanka, other countries in the region are providing money for investors at far lesser percentages. Here, the present borrowing rates are unattractive.

Therefore, the need of the hour is driving Sri Lankan entrepreneurs and if we don't do this at this juncture there will be strong ramifications. That is why the SEC is facilitating the newcomers.

There is lots of money waiting to be invested. We need to bring large companies into this market. Large tea, IT and apparel companies have not yet been tapped by the SM. Let the family health companies and individual business companies play a role in the national economy.

Q: What is the major reason that they don't invest in the SM?

A: It is the unattractive offers given to them. Mainly the valuation that we provided was not attractive and we have to sell shares for cheap prices. Now the valuation is high. The Price Earning Ratio which was six to seven times, has been increased to 14 times. Hopefully more will come to the platform now with this improvement.

Q: What are your plans to get these companies into the share market?

A: What we should first make the investors realise is that the environment has changed and we are looking forward very positively. The main change made to bringing more investors to the SM is taking away the lengthy procedures to make their entry to the SM easy.

Q: What do you think are the steps needed to be implemented urgently to keep this achievement alive?

A: In this planetary transition we need to wake up, strengthen ourselves to promote local entrepreneurs. This is very vital and as I said earlier if we delayed the local investor flow into the SM, the future will be disadvantageous for the local entrepreneurs.

The other requirement is we need to shift from over dependency from traditional ways of earnings like garments and tea. We need to look at not sunset industries but sunrise industries. We have to target the new trends like IT, bio-technology and other novel sectors. The country needs to re-design our strategy, plan the economy, prioritise the industries and support them. It is time to look at these with a new lense. We have a huge potential in these sectors and need to plan and tap these avenues. We have to be competitive.

Q: How do you plan to open up avenues for investors in the North and the East which is trying to rise from the ashes?

A: What I can say is the infrastructure development, which is vital for development of business, in the province is commendable. Developing infrastructure is not a waste and we have to promote people who can do business in the province. Trincomalee harbour is being just opened up and shipments are taking place from there. The sea transport is quicker from Trinco to South India and we have to capture that opportunity from this new Port. Therefore we have to encourage the potential that the province has to improve competitiveness.

More innovative fields need to be explored with the support of the intellectuals in the Province. The Jaffna University has produced top intellectuals and academics for the country. It is time to get their contribution for development. Sri Lanka needs to shift from low value base formula to higher base formula. We need to look at world trends, what are the opportunities and how best Sri Lanka can take advantage of it.

Q: You have mentioned about taking advantage of this achievement to bring foreign investors to the SM?

A: The SEC has planned a series of promotion events abroad. The November road show in Singapore is the first event in this series. Here, we mainly focus the Singaporean investors. Our achievement as the second best performing country would be able to attract more investors to the SM.

We need to have competitive plans for the economy and industries. A separate plan to promote industries is vital but this is not there today. In this global economy which is moving in different directions Sri Lanka should discover where the country belongs.

The other necessity is to link the public and private sectors to prevent these sectors going different ways.

Q: Apart from promoting businessmen, what are the steps taken to promote the ordinary public?

A: Yes, it is very vital to expand the SM to get in the ordinary people who have earning power. Internationally the domestic investors account for 50 to 70 percent of the SM. The daily turnover of the SM in these countries comes mainly from the domestic investors. In Sri Lanka there are nearly 80 percent domestic investors and a greater part of the domestic investors in Sri Lanka are retail investors. But we need the Sri Lankan housewives to take a greater interest like in Taiwan and Singapore. While being at home they can do buying and selling of shares. Therefore, the CSE wants to promote more women, professionals and youth into the SM.

We plan to have a big educational drive, especially designed to attract young people who are ready to earn. We will intensify our campaign fivefold. We are committed and determined to bring these segments into the market.

We also need to create an environment where the shareholders constantly buy and sell shares without holding them. There are lots of companies which are holding lots of shares to their chest. There should be a greater liquidity in the SM.

Q: Don't you think the political stability of this country too contributed towards the good performance of the share market?

A: Yes, the government strategy to defeat terrorism and develop has contributed to this vastly. People have confidence in the government and President Mahinda Rajapaksa is now accepted as the undisputed leader of the country. He is the leader that Sri Lanka has been waiting for. He is a very powerful leader and a leader who can relate to people and drive this country for development.