WALL STREET

“Wall Street” which was an informative virtual session that provided useful and timely insights regarding the Post Covid-19 situation of the capital market in Sri Lanka, was held on the 27th May, 2020 via Zoom and Facebook platforms. The session was facilitated by the keynote speaker - Mr. Dimantha Mathew, Head of Research at First Capital and was moderated by Co-Director Professional Development – Rtr. Ovin Bimsara.

The session which was conducted along with a slide show presented by Mr. Dimantha started off with a concise explanation about the importance of investments over savings and the various investment opportunities available to us as Sri Lankans while also emphasizing the significant benefits and risks associated with stock market investments. This was done in comparison to other investments like Treasury Bills, Treasury Bonds, Fixed Deposits and arbitrary investments.

Then he further explained the structure of the Colombo Stock Exchange Market in terms of the 2 List Platforms and 2 Price Indices.

List Platforms: 1. Main Board –Companies with a larger capital base, 2. Dirisavi Board – Medium to Small companies and start-up companies)

Price Indices: 1. All Share Price Index (ASPI), 2. S&P Sri Lanka 20 Index (Reviewed every 6 months)

After touching upon the contradictory concepts of Risk and Return, the outcomes of reduced interest rates was explained. Accordingly, we learnt that reduction in interest rated encourage entrepreneurs to expand their business with investments becoming more viable thus leading to increased level of activity in the market. Next a brief reminder was given about the benefits of investing in shares and this was followed by stating how to invest in the Colombo Stock Exchange. (CSE)

1. Find a trustworthy stockbroker. 2. Open an account in the CSE. 3. Analyze research reports. 4. Trade through an investment advisor or via online platforms.

With the help of a graph that illustrated the movement of the market over the last 15-20 years, he highlighted how the volatility of interest rates has led to an out-performance of fixed income returns when compared with equity returns from the stock market. At this point he stressed on the fact that this observation was indeed something very unusual and that entry and exit in the market is vital for one to make money in Sri Lanka owing to extremely volatile interest rates. For example, in the last decade we have seen interest rates at 21% and even at 10%.

Thereafter, Mr. Dimantha went on to make us aware of transaction costs, types of shares and benefits from various types of shares. In order to give us a more realistic understanding of these topics, the strategic changes and resultant trends in share price movements of Ceylinco Insurance Service Innovation, Watawala Plantation (Palm Oil Cultivations) and Piramal Glass were explained in detail.

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Next he outlined the differences between cyclical stocks and defensive stocks and delineated the concepts of under-priced, fairly priced and overpriced stocks. With this, the first half of the session was successfully wrapped up and a smooth transition was made in to the 2nd segment.

Thereupon the focus of the session shifted to enlighten the viewers on insights of the current and future impacts of COVID-19 situation on the capital market of Sri Lanka. Accordingly, based on the expected lockdown periods, the scenarios vary from the greater good to the worst and currently the country is experiencing a 50-50 scenario. The GDP growth is expected to decline to a negative 1.4% in the mid quarters of the year, following a recessionary pattern similar to the years, 2001 and 2008. Accordingly the conclusion drawn from these facts is that the outlook for Sri Lanka appears very weak along with the negative credit contraction.

Through the use of various illustrations and graphs Mr. Dimantha Mathew elaborated the significant weaknesses across the Sri Lankan economy in the aspects of foreign debt, public debt and many more and how that would lead to a possible downgrade to “C Grade Ratings” from rating agencies in the near future. Moreover, he spoke on how the 50-day market closure of the Colombo Stock Exchange has negatively affected the foreign sector causing a lot of foreign outflows from the market.

This was followed by a thorough explanation on the categorization of industries based on their recovery periods spanning from 6 – 18 months giving the viewers an insight on which industries are healthy enough to invest in the short run as well as long run. “Over the next 0-6 months, we expect a recovery in the food and beverage sector, retail sectors like supermarkets, health care sector and the telecommunication and energy sectors” said Mr. Dimantha who also went on to state that it has been predicted for the economic impact to actually bottom out in September.

Towards the end of the session the moderator picked up certain questions presented by the viewers and they were answered by the facilitator with much clarity. These answers interestingly revealed that despite the current economic and financial situation, stock market investments seem to be an attractive investment option in Sri Lanka due to the lack of such investment options when fixed deposits are cut off from the list of options. Thereby he highlighted the positive aspect in an investor perspective and encouraged the viewers to invest in the equity market due to prevailing low prices. “If your investment horizon is 2 to 3 years, the prices now are Gold! Buy when there’s blood on the streets.” he stated.

Wall Street was undoubtedly an educative session which clarified and provided the inquisitive participants with a deeper insight on not just the Economic Impact of COVID-19 on the Sri Lankan Capital market but also about the market’s general functionality. An hour long productive session came to a successful halt and as said in the Vote of Thanks presented by Rtr. Harith Lokugamage, it was a time well spent in the presence of an expert who gave a remarkable explanation.

 

Written By:

Rtr. Hasara Hikkaduwa
( Member – 2019/20 )

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