Big business expects bourse to overcome uncertain ’07

The Colombo Stock Exchange (CSE) is unlikely to offer attractive returns as it did in the previous years, but it will not hit rock bottom either, according to most of the country’s top corporate brass.

Some business leaders are sceptical, but they also see a lot of potential in the market if the government manages the political and the economic situation with prudence. They reiterated that the country’s situation should improve. “The stock market will be very dull this year if the violence does not stop,” Nimal Perera, Director, Connaissance Holdings said, adding that firms in the leisure sector will suffer tremendously. However, he said that some companies in the manufacturing sector will do well as will the banks. “The country situation should improve and there has to be a progressive plan for peace,” Perera added.

Ashok Pathirage, Chairman, Softlogic Group said that looking at the current scenario it is a tough call for most companies and all investors. “Everything depends on peace and on how friendly the government is to the investor community,” he explained, adding that more and more people are worried about investing mainly due to unclear government policies. He said that the policy makers should have a better understanding of economics and the government should have the foresight to put the right people in the right place.

He said that presently the market is driven by retailers who are not fully aware about the stock market. “Right now the CSE is driven by retailers who do not even know what they are investing in,” he said, adding that it is unhealthy to depend on them.
Bartleet Mallory Stockbrokers (Pvt) Ltd said despite the strong performance in 2006, more moderate returns from the CSE are seen in 2007 with rising interest rates and political instability likely to impact performance.

Tightening of monetary policy is expected with inflation peaking at its highest level for close to five years while the currency likely to lose value, according to C.T. Smith Stockbrokers. “The higher interest rate scenario, weaker currency along with an uncertain political environment is likely to have a negative impact on equity markets,” a report by the company said.

However, it is not all doom, according to some business leaders. “The CSE is volatile, but at the same time it is resilient in the longer term,” a senior banker explained, adding that despite the aggravating conflict, the CSE has not collapsed drastically. Also he further said that this development may be largely attributable to listed corporates posting good results. “Out of the over 200 firms in the CSE, many have performed well during the last year and also during the previous years,” he added. “In this context, unless there is a very serious breakdown in the security situation, the CSE will do moderately well,” he said, adding that it will be like 2006. “The CSE geared up for the Presidential elections held on the 17th November in 2005 with both the ASPI and MPI significantly increasing in the days leading upto it, but crashed on the 18th. Also the escalating violence in the North since the beginning of December contributed to the market’s sliding behaviour, but in 2006 it recorded the highest ever indices,” he explained.

Hemantha Perera, Managing Director Kelani Cables said that the CSE will not crash this year, mainly because many corporates will post good corporate results for 2006. “Construction industry related companies will do very well,” he said, adding that the CSE as it has always been during the last few years will be resilient.