While most business and economic sectors would be slowed down in the first quarter of the year by elections – presidential and parliamentary – and a slow recovery from the global financial crisis, the Colombo stockmarket is expected to zoom ahead.
According to current forecasts, the market is set to reach the 4,000 level after closing at the end of 2009 (December 30) with the All Share at 3,385.55 and the Milanka at 3,849.38.
In recent months, turnovers have been averaging Rs 1 billion or around that amount with enthusiastic trading among retailers, high networth investors and institutions (here and abroad).
According to reports, banking stocks – which have done well in any circumstances – are set to rule again this year with brokers saying all the main listed stocks -- Commercial, Sampath, HNB, NDB and DFCC – are expected to do well. So will stocks like JKH, Hayleys, Aitken Spence, Carsons and Ceylon Theatres.
The problem however – and a perennial one at that – is that only a fraction of the hundreds of shareholders of listed companies trade in the stockmarket and out of that just a few control the market through their sizable stakes. When will those famous words by a minister in the 1980s ring true of Sri Lanka having a shareholding democracy where most or a substantial slice of its citizens will own shares in listed companies?
Until that happens, the market will be dominated by a few players and institutions. The biggest single (foreign) player last year, Raj Rajaratnam, has quit after he was hauled up by US authorities for insider trading. Rajaratnam’s Galleon Fund has exited from all Sri Lankan companies while the under-fire, US-based fund manager is also selling his personal stakes in local companies.
The market is seen bullish throughout 2010 and expected to attract more IPOs (Initial Public Offerings). One new, successful IPO, Renuka Agri Foods, opens for trading tomorrow and should attract some interest.
While several companies have been on the backburner with a shall-we, shall-we-not decision to make on listing in the Colombo Stock Exchange given various other non-war issues including in a slowdown in economic activity, decision-making will be speedier in coming months, most analysts believe.
The lowering of interest rates which has affected deposits by thousands of pensioners and other investors is also another incentive towards investing in the stockmarkets.
Apart from the stockmarkets, business activity during Christmas and ahead of the New Year was slow with most businessess saying sales was lower that the war-filled years. Hotels however showed improved business with more corporate functions and New Year’s Eve dances.
The stockmarkets apart, most businesses are likely to adopt a wait-and-see policy to check out the economic policies and the pulse of the winning presidential candidate and how business-friendly it would be. Responses by the two main candidates – Mahinda Rajapaksa and Sarath Fonseka – to questions posed by the Business Times, particularly on the issue of business being overburdened by taxes, were mixed. The President said he didn’t agree that there was over-taxation and said the money was required for extensive development work while Fonseka blamed the issue of over-taxing on money lost due to corruption which he said he hopes to put right (if elected).
After the presidential elections on January 26, the parliamentary poll will have to be held keeping the business community again guessing and waiting probably till end March/early April.
Inflation last year was kept low but indications are that it will rise this year while government spending will also be difficult to keep to the fiscal deficit targets promised in agreements with the International Monetary Fund (IMF). IMF officials said they were awaiting the latest quarter to December 2009 deficit figures to decide on the third tranche of the $2.6 billion bailout package approved in mid-2009.
Expectations are that economic growth will be around 6 % this year. However maintaining budget deficit targets this year and in 2011 is a major challenge, IMF Representative in Sri Lanka Koshy Mathai told the Business Times in an interview last month. Sri Lanka has promised to maintain ambitious fiscal deficit targets of 6% this year and 5% in 2011 while hoping to achieve a target of 7% in 2009.
Nevertheless the positives in the Sri Lankan economy are expected to outweigh the negatives and Sri Lankan corporates can look forward to a much better year starting from the first quarter-middle of 2010.