Lack of liquidity forces out preferred stocks from S&P 20

The Colombo Stock Exchange (CSE) last week announced changes to the constituents of the S&P Sri Lanka 20 Index, as four large companies were moved out based on liquidity and financial viability. 

The four companies that were moved out commanded a market capitalisation of Rs. 411,036 billion on the CSE, representing 15.12% of the total capitalisation, which includes the company with the highest market cap, Ceylon Tobacco Company PLC, plus, Ceylon Cold Stores and Nestle Lanka PLC. CTC constitutes 7.7% of the total market whilst CCC and Nestle form 3.4% each. Seylan Bank PLC is the fourth entity to be moved out with Rs. 1,472 billion representing 0.54% of the market. 

These have been replaced by Ceylinco Insurance, Melstacorp, Softlogic Holdings and Vallibel One, representing Rs. 142,017 billion in terms of market capitalisation, which is 5.23% of the market. Despite the lack of liquidity in the stock as investors hold on to acquired shares, the four excluded companies generate some of the greatest interest amongst both local and foreign buyers.

The S&P Sri Lanka 20 is designed to measure the performance of 20 of the largest and most liquid companies in the Sri Lankan equity market. Index constituents must be listed on the CSE and are screened for size, liquidity, and financial viability, and was jointly developed by the CSE and the S&P Dow Jones Indices.

A revision of the S&P SL 20 methodology in 2017 established the practice of a semi-annual rebalance of the index, which now takes place during the months of June and December each year. The revision also established the inclusion of non‐voting ordinary shares listed by the respective companies of the S&P SL 20 Index, provided that such shares meet relevant liquidity requirements. The latest exclusions and inclusions as announced by S&P Dow Jones Indices came into effect on 18 June 2018.