Stocks and sustaining growth in 2007

The Colombo Stock Exchange (CSE) is on an overall high with a 43 percent growth this year as opposed to 27.5 percent in 2005, but most stock market analysts are skeptical about sustaining this momentum from the beginning of 2007.

“Given the present macro environment, it is difficult for the CSE to post a year on year growth of more than 25 percent, which it has been doing over the past four years,” Geeth Balasuriya, Research Analyst, HNB Stockbrokers told The Sunday Times FT.

He added that if there is a commitment on peace, the market will definitely move forward and will see more than 43 percent growth posted this year. However, he said that the Gross Domestic Product (GDP) growth of 7.5 percent, posted for the third quarter is very encouraging and next year’s market movers will be the telecom and financial services firms.

“There is a 10.9 percent growth in financial services, which is very encouraging,” he said, adding that telecom companies and banking will show an overall growth. A stockbroker said that all the progress in 2007 will hinge upon the North- East situation. “It will depend largely on whether the intensity of the conflict will increase and whether it will spread to other areas of the country,” he said adding that if such a situation prevails, it will deter foreign trading in the CSE.

However there are some stakeholders who do not predict doom. “The CSE will be performing well next year, because presently there are more funds in the market chasing fewer shares,” Tushan Wickramasinghe, Managing Director, Lanka Orix Securities Company said. He explained that there are over 60,000 active Central Depository System (CDS) accounts and less than 10 percent free float in many blue chips. “Against 6,000 active CDS accounts in 1993, where there was only 40 percent of free float in most of the blue chips, the present scenario will find more funds chasing fewer stocks,” he pointed out.