Capital markets can be SME lifeboat in a sea of policy waves
Sri Lanka’s macroeconomic policy consistency has managed to attract foreign investors earlier, but better investor perception and consistent policy-making, budgets, and IMF Programme continuation are needed to attract foreign investors and maintain its competitiveness.
During the time that there was some consistency in macro policy in the country, foreigners came in, and when that gets repeated, we will witness some type of foreign inflow, an analyst said.
“Since we came out of a crisis, we got downgraded, and now investor perception needs to be rebuilt, and some consistency in policy making, budgets, and continuation of the IMF Programme needs to be maintained. Sri Lanka is competing amongst many different countries, and foreign investors have such a choice of where to put their money. Sri Lanka is not a preferred destination for foreign investors, and we are a small market and had a lot of inconsistency and volatility in performance, as our policymaking has been inconsistent. This is why we need to see some consistency and the stability to attract them,” Ruvini Fernando, Head of Strategy, Risk & Transactions at Deloitte Sri Lanka and Maldives, told a forum of bankers recently. Noting that other countries offer more stable and highly growth-oriented prospects for foreign investors, she said that Sri Lanka needs to be more supportive of things that promote policy consistency and stability.
Pertaining to financing small and medium enterprises through the capital markets, she said that these businesses can use intermediate instruments such as venture capital with the right tax structure. “Bankers acting as a one-stop shop can enable this as a fee-based income to fund some of the companies that are at the stage of entrepreneurs,” she explained.
She also pointed out that banks can become creative in providing these services. “In other countries, retirement pension funds are widely invested in unit trust bonds etc with such products, more real wealth is gained by the investors.”
Since August of last year, the Colombo Stock Exchange’s (CSE) market cap has increased by Rs. 2.8 trillion, Dilshan Wirasekera, Managing Director/ CEO of First Capital Holdings noted, saying that all of this wealth creation is sitting in the hands of Sri Lankans.
He said that CSE multiples are 9.5 times price to earnings and a 1 to 1.2 times the book value. For the past one and a half decades, the price-to-book value has been an average of 1.4 with a high of 1.6. He said that what will drive foreign investments will be the new government having a full budget and how that will be put through, which will be the catalyst.
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