By Sanath Nanayakkare

The participation of active retail investors in the Colombo Stock Exchange (CSE) is encouraging. Foreign investors have infused capital at an all-time high in 2022 despite domestic turbulences. With the planned introduction of green bonds, perpetual bonds, high-yielding bonds and flexible rules on speculative trading in the forthcoming quarters, the investor sentiment on the Colombo Stock exchange is likely to see an uptick in 2023. There is a strategy by CSE for 2023/2024 to make CSE a broad-based, seamless platform for high net-worth Individuals, foreign investors, institutional investors and retail investors alike.

This was revealed at a media briefing held by the CSE on Wednesday at Shangri La Colombo. Dilshan Wirasekara, Chairman of the Colombo Stock Exchange said,” Last year was quite challenging for all industries as Sri Lanka went through its worst economic crisis post-independence. However, through the crisis, despite the fact the some of the gains we had made in the previous year had reversed, we were able to perform relatively well in 2022 with some notable achievements. We saw growing confidence of foreign investors in our market. We had all-time high foreign investments in excess of Rs. 50 billion which was quite a significant achievement given that we really couldn’t attract any other foreign investments or foreign currency into the country.

CSE remains profitable along with its subsidiary, the Central Deposit System (CDS). This augurs well for the institution because we are on a solid footing in a financial perspective. This is important because we need to make significant investments into software development, human resources, infrastructure, market education etc. The market itself even though it declined by 30%, we believe that it offers a good upside in the medium term for investors because of low valuations. Our market continues to be one of the cheapest markets out there. I think we are trading at a lower than one time from price to book value and around five times in earnings. So even through these challenges our market valuations are attractive and it is something that we want to make sure the public are aware of, and all stakeholders can capitalize on.”

Rajeeva Bandaranaike. Chief Executive Officer of CSE highlighting key achievements of the organization during 2022 and laying out strategy direction for 2023 said,” We had a 30% decline in All Share Price Index (ASPI) last year. S&P SL 20 index also declined during the year by 7%. However, the good thing about trading was that the market volume was robust even though it was not at the same level as in 2021 which was an exceptional year. The market capitalization remained Rs. 8.8 trillion and the daily average turnover almost touched Rs. 3 billion last year. It was not as good as previous year but was better than most of the past years. The market capitalization as a percentage of GDP was 22% last year which was still higher than some of the previous years. In terms of capital raising, last year was not too good a year. We raised both in terms of debt and equity capital, Rs. 22 billion as against Rs.

123 billion that we raised in 2021. This was partly due to the difficulty we went through as a result of the interest rate environment. The number of new listings was not that great as we had lesser numbers than last year. Notably in 2022, domestic investors were dominating the market accounting for 95% of the volume. But there was somewhat of an increase in foreign flows in 2022- a marginal increase. Retail investors continued to be active in the market and the volumes kept going. If we take the primary market and the secondary market, we had a total net foreign inflow of Rs. 51 billion. This is encouraging news for the market and for the future as well as there are foreign investors looking at our market and are confident in our listed companies to make investments in. One of the reasons why we have a fairly large, active retail base is as a result of the end-to-end digitization process that we have achieved. The Central Counter Party System commissioned last year will help minimize settlement risks to a large extent. In terms of regulation, we completely revamped the entire set of rules of the Stock Exchange to be in conformity with the new SEC Act. In terms of expanding the market, we continued our broad-basing strategy and investor education awareness programmes .We have now conducted over 500 seminars all over the country.”

“We continued to engage with foreign investors, CSE conducted a forum in London last January mainly to engage with existing foreign investors to allay their concerns about Sri Lanka. In September-October 2022, a group of foreign investors visited Sri Lanka on the invitation of a stockbroking firm and met with the President and the governor of the Central Bank. This galvanized their confidence and encouraged them to be active in market.”

“In 2023, we will focus on new product development in debt and equity. We are already working to introduce new products during the course of this year and next year. Our teams are currently working on, for example, to launch green bonds, perpetual bonds, high-yielding bonds etc. and also the secondary trading of corporate debt. A lot work is being done these fronts. In terms of improving risk management, we are hoping to go live with the implementation of the Central Counter Party System. This we will do through the incorporation of another subsidiary of the CSE (CSE Clear). This will be a significant development in Risk management. Also, we will have a new grievance handling procedure to cater to investor complaints. We will form an independent panel – independent of CSE – to hear complaints and investor grievances in order to strengthen the confidence of investors and the market. We will continue to improve the timely informational quality of information disseminated by the listed companies. We are also working on a project where we are trying to standardize the templates for the release of financial results of companies which will be useful for analysts, institutional and foreign investors.”

“In terms of developing market accessibility and convenience to stakeholders, we will continue to expand our branch network and we have planned two more branches during the first half of this year. One in in Panadura (in the next month or two) and another one in Batticaloa, in order to broad base the market because we see a strong retail base. We have seen a notable increase in the number of retail investors over the last three years. A younger section of investors has come in particularly after the enhanced digitization. About 80% of accounts that are opened are by investors who are below 40 years of age. They seem to be replacing the traditional over 55-year old investor base. And with more intensity in our efforts in 2023, we will continue to focus on new listings as well as opportunities for local companies to raise funds in multi-currency or USD denominated capital.” he said.