ACCA conducts a panel discussion on Sri Lankan capital markets

Sri Lankan capital markets have gone through multiple cycles in the recent past; from post war market boom, speculative retail trading sprees, exit of portfolio money, sharp correction, stagnation, and moderate recovery with the inflow of foreign money.

The Association of Chartered Certified Accountants, the global body for professional accountants recently conducted a discussion to address these issues with the current capital market environment and future prospects for the market, given the development initiatives taken by the regulators and market participants as a whole. This forum was sponsored by Mercury Institute of Management, ACCA’s sole platinum approved tuition provider in Sri Lanka.

The panel discussion consisted of an eminent panel that included Delmege Forsyth and Co Ltd., Group Director Channa De Silva, Peoples Merchant Bank PLC Acting Managing Director Ramanan Govindasamy, Heraymila Securities Limited CEO Ravi Abeysuriya, Royal Ceramics PLC Managing Director and Pan Asia Bank Chairman Nimal Perera and moderated by TKS Securities Director Dhanushka  Samarasinghe.

The panellists discussed many key aspects pertaining to this subject that included how Sri Lanka could bring back both local and foreign portfolio and retail investments back to the market and to ascertain what is ahead for Sri Lanka’s capital markets.

Giving his thoughts to the subject, Nimal Perera stated that he believed that the regulatory methods applied and the constant rise of interest rates affected the stock market. He stated that the interest rate has a wide and varied impact upon the economy. When it is raised, the general effect is a lessening of the amount of money in circulation, which works to keep inflation low. It also makes borrowing money more expensive, which affects how consumers and businesses spend their money and this increases expenses for companies, lowering earnings somewhat for those with debt to pay. Finally, it tends to make the stock market a slightly less attractive place to invest.

Ravi Abeysuriya was of the opinion that brokers also need to take responsibility and have their client’s interest at heart when advising on stocks. He pointed out that in Sri Lanka; investments are largely driven by speculation and rumours of what is being purchased by the big players in the stock market, whereas it should ideally be based on research-based insights of the relevant companies and their fundamentals. In the view of fundamental analysis, stock valuation based on fundamentals aims to give an estimate of their intrinsic value of the stock, based on predictions of the future cash flows and profitability of the business, together with what will the market pay for these profits, Abeysuriya affirmed that therefore it was important for CEOs and Managing Directors of stock broking companies to ensure that their brokers conduct themselves ethically and adopt the best practices required by the industry.  

Channa De Silva also endorsed these views by stating that the CSE has been playing a rather passive role in this context which should not be the case. He said however that SEC has instead taken much initiative in playing a significantly aggressive role. He added however that it was also very important that the SEC should support the market to visit developed countries to promote and garner the interest in our market. He went on to explain further that during the past one and half years almost every IPO has had the value of their shares falling as against its initial value. He said that this could turn investors off and stated that Sri Lanka should work on have a vibrant trading environment in terms of import and export, which will in turn contribute to the betterment of the stock market. He went on to say that our currency also has no value in other markets and we should work on having a healthy and wealthy economy that will invariably be reflected on our stock market.

Ramanan Govindasamy added to these comments by stating that a lower GDP growth has lead to higher interest rates resulting in people playing it safe and looking at fixed income as a safer option. He said that the fundamentals of the corporate and listed companies also need to improve. Govindasamy also stated that he sees this happening within the next five years so that Sri Lanka would be in a better position to compete and attract developed markets.