Prediction of record heights in 2007 for net foreign inflows

Channa Kasturisinghe

BOURSE: Although, there have been attempts by certain sections of the media to create a wrong picture that foreign investors are pulling out from the Colombo Stock Exchange (CSE) stock analysts expect 2007 to be a record year in terms of net foreign inflow.

Statistics show that there had been a similar trend of foreign outflow in the first few months of the last couple of years but they ended up as record-breaking years as far as net foreign inflow is concerned.

According to CSE statistics the net foreign outflow of the first 2 months of 2006 was Rs. 636 billion and in 2005 during the same period it was Rs. 407 million.

“However, last year was the second highest in terms of net foreign inflow which was recorded at Rs. 5.3 billion,” Business Development Manager of Colombo Stock Exchange Thushara Jayaratne told the Daily News. He said in 2005 CSE saw its highest ever net foreign inflow of Rs. 6.1 billion.

“It clearly shows that the Rs. 1.8 billion foreign outflow of the first two months of this year is not necessarily an indication of what is to come,” Jayaratne said.

Some analysts said that they were disappointed by attempts by some sections of the media who use statistics to create a negative picture about Sri Lanka.

“It was shocking to see an article published by Bloomberg trying to say that foreign investors are running away from this country. We know some people lie to tarnish the image of our country but investors should not be disturbed as statistics don’t lie,” Business Development Manager of Bartleet Mallory Stockbrokers Angelo Ranasinghe, told the Daily News.

He said there are lot of encouraging things about the performance of the CSE lately. “There is a strong local base and local investors account for more than 80% of daily turnover, which at present averages around Rs. 750 mn. Despite adverse political conditions the Colombo Stock Market grew 42% in 2006 and had a compounded growth of 36% since 2001.

The key sectors namely Telecom, Diversified, Banking, Finance & Insurance, Food & Beverage and Manufacturing depict strong fundamentals and healthy earnings outlook for 2006/07 and 2007/08 financial years,” Ranasinghe said.

He said the market should not only reflect political situation but should reflect corporate fundamentals. “The stock market should clearly reflect the fundaments of the respective companies that are listed on the stock exchange,” Ranasinghe said.

One analyst said the article was baseless and there were inaccurate statements such as the SLT stock has traded at 23 times earnings.

“Sri Lanka Telecom is currently trading at 13.86 times based on 2006 earnings and 10.85 times based on 2007 forecast earnings,” he said.

Indika Rajakaruna of Asha Phillip Securities said it is encouraging to note that at present investors have transformed to those who take investment decisions driven by fundamentals rather than reacting to political events.

He said foreign inflow or outflow depends not only on political environment but also on factors such as exchange rate, interest rates and company performance etc.