Stock exchange targets $ 60-70 b market capitalisation in the next few years
Thursday, 13 February 2014 00:00
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By Cheranka Mendis
The Sri Lankan stock exchange is likely to hit $ 60-70 billion market capitalisation within the next few years, when the country reaches the anticipated $ 100 billion GDP in the economy.
Having studied stock exchanges across the world, the Central Bank of Sri Lanka (CBSL) has come to learn that when a country reaches a total GDP of around $ 100 billion, the country’s stock exchange will also reach 60-70% in value of that GDP, i.e. $ 60-70 million in market capitalisation.
The country is presently at $ 20 billion in market capitalisation, Central Bank Governor Ajith Nivard Cabraal said yesterday. “This indicates that we will have to move from $ 20 million to $ 60 million within the next few years. That is a challenge that we have.”
Sharing his thoughts at a award presentation of Securities and Exchange Commission’s (SEC) Capital Market Education, Training and Research (CEMET) division qualification programs, Cabraal noted that the country must now prepare to ensure that the economic thrust achieved so far is maintained over the next few years. A new trend is also now emerging, he expressed, a trend to push targets further until the maximum is achieved.
“The stock exchange will only now reflect what is taking place in the country’s economy. Very often there is a direct proportional basis between stock exchange and the economic GDP of the country. We are talking of reaching $ 100 billion economy within the next two to three years.”
He added: “Over the past few years work was done for us to get to where we are now. We need to maintain that. No longer are we comfortable with $ 200 million as investment. Last year we reached $ 1.5 billion; and yet this is not enough. That is a good sign. We should not be satisfied with whatever we achieve. We need to push ourselves to the next dimension.”
There is a constant stream of measures that has to be taken to ensure that the momentum is maintained and is sustainable.
He acknowledged that the markets have progressed well over the years, from 2004 when the market capitalisation of the Colombo Stock Exchange was only about Rs. 88 billion. Today there are many single companies which have market capitalisations which are lot more than Rs. 88 billion. In total, the market capitalisation of the entire market is said to be Rs. 2.5 trillion, Cabraal said – that shows how much the country has progressed over the last few years.
Similar extraordinary growths have been recorded from the increase in per capital income ($ 1,200 in 2004 to over $3,200 last year), drop in inflation and increase in FDIs among others.
On the infrastructure front too, the growth is a steady one.Cabraal announced that a new expressway connecting Galle and Matara will be commissioned next week. “The trip from Colombo to Matara will take only one hour and twenty minutes when this is completed,” he expressed, “There are many roads like that being constructed.”
The sentiment of the Central Bank on these trends is pure excitement, he said. “We at CBSL monitor as well as work through the entity of the financial market. The financial market is constituted with several segments - banks which accounts for 57%, financial company sector that accounts for 7%, stock exchange 10%, EPF 13%, CBSL 12%.”
“Those who learn about capital and bond markets are the future of the country. We see some interesting growth in all these over the next few years.”
Cabraal observed that the key to sustainable growth of the market is to keep abreast of everything taking place in the world economy in the next few years. “There will be new developments and jargon that will come, new ventures Sri Lanka will also move in to. New cash cows – the five hubs plus tourism will be multibillion dollar industries in the country. Those companies will also be floated in the stock exchange and quoted in the stock exchange and you will have the opportunity to get connected with those, do research, etc,” he said addressing the students receiving certificates last morning at the BMICH.
Securities and Exchange Commission (SEC) Chairman Dr. Nalaka Godahewa expressing his thoughts noted that 2014 is showing signs to indicate it being a good year for the market. “Sentiments are currently very good. 2014 is going to be a good year,” he said.
“For an economy to do well, businesses must do well, to do business well, governments, corporates all have to raise capital and to raise long term capital, capital market is the important sources,” Godahewa added. “For the development of the market financial literacy is very important. In the capital market businesses raise capital from the public and we need to advice the public correctly and safeguard the interests of the public – and for that, those in the industry must be fully literate.”
During the year 2013, CMET conducted various programs targeting different segments such as professionals employed in the financial sector, journalists and investors. Certificates of all successful students who have completed the programs were recognised at the annual award presentation ceremony yesterday.
Pix by Lasantha Kumara
