Sri Lanka’s capital market is set to regain momentum with improvements on the macroeconomic side and once the economic reform process gets going, with external funding lines getting activated, resulting in better performance, equity market sources revealed.
The capital market of Sri Lanka consists of government securities, stocks, and corporate bonds. All financial instruments have a combined value of about USD 66.3 billion as of July 2020. Government securities contribute the most, with about 63% of the economy, available official data showed.
Foreign investors are to be attracted by market valuations, with selective buying of stocks with strong fundamentals and growth potential despite the unfolding economic challenges.
The trend may continue if there is an improvement in the economic climate in 2023 which will then attract more foreign inflows into the capital market, finance ministry officials said.
A lot will also depend on how the listed companies perform: their financial results at the end of the year and their earning projections for 2023, and we are hopeful of improved performance in the coming year, Colombo Stock Exchange official said.
Market valuations are attractive because our market PE is lower than some of our peers, particularly when compared with other emerging and frontier markets, which makes the Sri Lankan capital market attractive.
However, the country’s sovereign credit rating is holding back investors to a degree. If we can persist with the economic reforms agenda, we believe foreign investors would be ready to take on the opportunities offered by the low valuations, he added.
From a business perspective, the high-interest rate regime and dampened investor sentiment are some of the negatives.
Meanwhile capital Advisory Services, a boutique investment bank in Sri Lanka achieved a historic milestone of a Rs. 1 billion in footprint in the first month of 2023 with a landmark deal in the agriculture sector.
CAS, was the sole facilitator and advisor to Nilvin View Tea Factory, (a member of the KDU group, one of the largest tea producers to the nation) in securing strategic long-term financing for capacity expansion.
CAS has been instrumental in raising capital, both in the form of debt and equity for Sri Lankan corporates and SMEs since its inception in 2020.
CAS Managing Director Lakshman Kariyawasam, a veteran in Sri Lankan capital markets said: “I saw a substantial vacuum in the capital market space, with very large corporates in the agricultural and manufacturing sectors, not having access to Capital Markets and Foreign financing as freely as the financial sector players.”
“Whilst their balance sheet was healthy and strong, they lacked the know how to access capital markets. I saw this as an opportunity for us to work with them in accessing local capital markets and foreign funding,” he added.
CAS said it has now grown to be a force to be reckoned with in the Sri Lankan capital markets and will continue its mission of “Capital Market inclusion” for the untapped sectors in Sri Lanka.