Financial Times

When farmers buy and sell in the Colombo bourse ….
By Ajit De Soyza
“Be practical and use common sense. Know what is happening in the world and you can make money” was the advice given by Sriyan Gurusinghe, CEO of Ceylinco Stock Brokers when he addressed members of The Sunday Times Business Club last week.

Gurusinghe was speaking to the members on the stock market in Sri Lanka covering its history, current trends and the future. Commencing from the initial beginnings of the stock market in Sri Lanka in 1896 with joint stock companies mainly from the tea industry and to what it is today, the stock market in Sri Lanka has an impressive record.

By 1948 the number of companies being traded in the stock market in Sri Lanka rose to around 140 companies from the initial count of around 70 companies. Due to the closed market policies of successive governments since independence, the market remained a closed market with a limited investor community trading. “Investor confidence is important for the stock market to be live and kicking,” said Gurusinghe who has been actively involved in the stock market for over 13 years, and is also was one of the founder members of the club more than 10 years ago.

With the free market policies being implemented by the government since 1977, the stock market grew at a rapid pace and subsequently the Securities and Exchange Commission was formed as the market needed to be regulated. In 1990 the market was opened to foreign investors and an automated trading system was commissioned in 1997. The implementation of an automated system was significant for Sri Lanka at that time as only a very few stock exchanges in the region had such a system where countries such as Japan continued to trade in the traditional method.

Sri Lanka experienced two rallies in the stock market in 1993 and 2001. Government changes and other political situations in the country contributed to this downturn in the market which resulted in the market dropping down to record levels. However the market recovered significantly compared to other markets in the region and the same trend still continues. The stock market in Sri Lanka however continues to be small in size compared to other markets and in some cases is detrimental as the market is unable to attract large scale foreign investors such as large investment funds. For example the Reliance Group in India has a market capitalization of 2.5 times the market capitalization of the entire stock market in Sri Lanka.

Since 2001 there has been an increase in locals investing in the stock market and is seen as a very positive step for the market. He said this trend needs to continue as investors need not fear a market downturn since the market has shown resilience in holding up despite the war and other situations in the country.

In addition IPOs have helped to increase the liquidity of the market. Having a lot of fluctuations in the market is good, since it will allow investors to make healthy returns. “The market must not be boring, it must be active,” said Gurusinghe.

The Colombo Stock Exchange has about 450,000 trading accounts today compared to around 190,000 accounts in 1994. This is a significant growth in investor numbers. However compared to the population of Sri Lanka, the number of investors is quite insignificant. In a country such as India where the success story of its stock market has been due to it being driven by locals, Sri Lanka needs to follow this model.

Commenting on the future of the stock market, the Ceylinco Stock Brokers CEO is of the view that when, “farmers of Sri Lanka are able to buy and sell in the stock market, the market will reach maturity”. Such an environment would mean that the market will be driven mainly by the local population of the country such as in Korea. One of the drawbacks of the market in Sri Lanka is the limited number of firms that can trade in the stock exchange and the number of stock brokers who are available to service investors. There are 15 broker-firms in the country with a total of around 300 stock brokers to service 450,000 accounts. This was further confirmed when a member of the Business Club raised a question as to why stock brokers tend to “favour” the big investors while ignoring the normal retail investors. In fact, the biggest setback in the stock market today is the limited resources available to serve customers.

Mr. Gurusinghe said investors need to be practical in investing in the stock market. The stock market is not just a gambling place and with a good objective, investors will be able to make money. Providing expert advice as a stock broker to the members of the club on investing in the Colombo Stock Market, he said that strategies such as investing and collecting stocks in small quantities where a huge one time investment is not required will promise good returns. He also cautioned members against buying shares at the wrong time, investing all your money and also excessive or overtrading. “If you want to be in the market, you also should be prepared to take a loss in order to make a gain” he said.

Providing a further insight into the future of the stock market and providing good news to local investors, he said that technologies such as “Internet Trading” will allow opportunities for local investors to invest more in the market and at their convenience providing additional flexibility to do research on stocks prior to investing. This will allow the stock market to grow and Sri Lankans to become a vital part of Sri Lanka’s stock market.

An interesting presentation was also made by one of the members of the club on “Neuro Linguistic Programming” for personal success as part of the proceedings for the meeting of the club. The meeting was held at The Trans Asia Hotel, the host of the club and was co-sponsored by Lion Brewery Ltd.

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