2023: A year in Review

ASPI gained by 25.5% and in USD terms may be 35%.

Overall the big cap counters did well with Banks and PD shares.

But most investors were down up to 30% on mid cap and penny shares depending on entry points.

Overall the turnover levels were low on average 1.7b and in 2nd half below 1b mark compared to 2022 -3b and 2021-5b.

Even foreign inflow was only 4.4b compared to 2022 30b.

Last 4 years performance of CSE

ASPI 

2020-6108-6774 +666 pts +10.9%

2021-6774-12,226 +5452 +80.4%

2022-12,226-8489 -3737 -30.5%

2023-8489-10,654 +2165 +25.5%

2021 was the best for the market with low interest rates and high liquidity in the market.

2022 was the worst with the country going through shortages, queues, Dollar shortage and finally the Government defaulting on loans.

2023- Gaining IMF support, implementation of IMF conditions and reforms and stabilising the economy.

As for the Government, most indicators have improved and work is in progress for the balance with lots of pain to the citizens.

Due to the above, interest rates were very high close to 30% making it difficult for businesses and impacting the bottom line.

Most of the money and investment went into high yield bonds, TB, FDs and debentures, making it difficult for the market to perform with attractive options on above and high margin costs to invest.

Also, expected big buybacks and buyouts didn’t happen during the year.

What to look forward in 2024

With many areas stabilised during the later part:

Inflation down, below 5% from 70%

Interest rates down, 12% on AWPR from close to 30%.

Exchange rates stable

Reserves up to 4b

3rd quarter GDP turned positive after 6-8 quarters of negative and 4th quarter looking good.

Tourism starting to boom 

Workers’ remittances improving

Government revenues improving 

SOE losses have become profitable 

3rd quarter listed companies making better profits.

What more do be done

Need to continue the reforms at a faster pace

SOE privatisation 

Tax net to broadbase 

Expedite digitisation 

EDR to finalise 

Upgrade the ratings

Improve the ease of doing business 

Attract more and big FDIs 

PortCity investments

Get into more Free Trade Agreements 

If privatization happens of all entities dependent on the Government, massive amounts in trillions could be gained from sales proceeds, and that would increase efficiency and better service.

Also, reduce the payroll from the Government coffers, reduce Government borrowing and interest payments, one of the highest expenses for the Government, i.e. salaries and interest payments.

Once this is done corruption will automatically be reduced or eliminated.

There won’t be any appointments on political influence and getting tenders passed through influence.

What to expect for the market

With low Interest rates money will flow back to the market and businesses will make better profits.

Funds, institutions, HNI, Retail will be more active.

Foreign inflows can be expected with ratings upgrades.

With SOE sales and Listings market cap and turnover would increase exponentially.

What sectors to look for

Mainly, banking undervalued. 5 to PBV, ISB write-back from excess provision, with economic recovery lower provisions in general

Tourism- improved arrivals and high potential

Plantation- At current levels, discounted to earlier levels, tea prices from a peak of 1,500 dropped to 800 levels and now picking up to 1,200 and volumes also increasing

Construction-after a relatively slower activity for the last 2 years, would improve with the economy

Investment companies-With expected rise in the market would do well in the next few quarters.

Diversified Conglomerates

With diversified sectors they will benefit.

Another play to look forward will be SOE privatisation and spillover effect to existing companies and re rating. Example: Telco, Hospitals, Hotels, Insurance, Banks, utility Gas and renewables can see some new potential foreign buyers.

What are the major concerns 

High taxation 

High cost of living 

Slow progress or implementation of reforms

Protest by Unions for SOE

Elections

Any winning Presidential candidate and Party has to continue the IMF reforms and there is no other way.

Some might promise some changes like taxes but eventually they would have to give a proposal to the IMF to cover that amount from another increase.

So overall there won’t be a major change whoever comes to power.

If the hard reforms are carried through like in India or Thailand we can come out of this mess and be sustainable and go on a growth and prosperity path for all.

And not go to the IMF in the future and not dictated by anyone and be self disciplined.

I believe Sri Lanka has so much potential and we can do it right.

On the whole I expect it’s time for CSE to reflect the true potential and renewed interest and be a place to make money in 2024 shifting from debt instruments and fixed income which gives lower returns at current rates and is still taxable.

(The writer is a high net worth investor in the Colombo stock market)