The indices of Sri Lanka’s presently ailing Colombo Stock Exchange (CSE) could rise by at least 20% if the government announced the discovery of oil in the near future, says a top market analyst. Based on his predictions, Sri Lanka’s main stock index, All Share Price Index (ASI) which is presently hovering around 4,900 points could shoot up by 20% in the first year following any positive announcement.
“Our attitude is that even if the chance of Big Oil strike next year is just 40%, with the near certainty that the market would rise 50% with the announcement, the expected return would be 20% just on hopes of oil”, founder and a Director of Frontier Research (Pvt.) Ltd. Amal Sanderatne said in his recent presentation titled ‘Sri Lanka – Ahead of the Pack’
Last week, Cairn India said its subsidiary Cairn Lanka would drill more exploratory wells in the island’s offshore belt from Mullaitivu to Galle next year following the discovery of gas and liquid hydrocarbons in two wells out of three wells drilled last year.
“With this news, if there is another announcement of a commitment by Cairn Lanka to invest another US$ 500 million for drilling, the stock market would respond positively,” he forecasted.
Highlighting that capital market investors tend to take a short-term perspective in terms of investment decisions, he cited a similar situation where Sri Lanka experienced a stock bubble following the end of the conflict in 2009 which he had forecasted.
“Before the end of the war, we said the market return would double with 20% probability of dawning peace, with an expected return of 20% just on hopes of peace. At that time we said not to bet against peace and the market responded even above expectations. Similarly, we would like to say this time to not bet against oil,” an optimistic Sanderatne emphasized.