The Chairman of the Securities and Exchange Commission of Sri Lanka (SEC) Dr. Nalaka Godahewa last week said he was a little disappointed with large state-owned institutions as they had in majority kept away from stock market investments during 2013 in comparison to previous years. According to 12 month statistics from October 2012 to October 2013 compared to the previous year from October 2011 to October 2012, trading activity by top five government-owned institutional investors has fallen by more than 50% from Rs.37 billion to Rs.16 billion, the SEC Chief claimed.
This, he says, was strange given the fact that in contrast, the capital market had recorded a significant increase in the level of participation by foreign funds which had shot up by as much as 47% by end October 2013 compared to October 2012.
“Analyzing the figures for this year, we have observed that for some reason or the other, state institutions that are generally the bigger players in the domestic circle have not been attracted by the same potential that foreign funds have,” Godahewa said.
He noted that although according to his understanding, “policy direction is there from the top for a greater involvement in the stock market, but at operational level some thing is not going quite right and that’s why Government Funds seem to be missing out on the opportunities market offers right now”.
He highlighted that except for Employees Trust Fund, which has sustained investments, other players such as the Employees Provident Fund (EPF), National Savings Bank (NSB), Bank of Ceylon, Sri Lanka Insurance,
Merchant Bank of Sri Lanka and People’s Bank have largely been less active in investing in the market.
“By law pension funds could go up to 20% in investing in the stock market and with the interest rates also kept low they could have contributed more.
As far as EPF is concerned they have a portfolio value of Rs.1.1 trillion whilst their investment in the market is a mere Rs.56bn which approximates to about 5%. But had they increased to at least 7% -7.5%, it would have provided a big boost to the market,” he said.
Analysts said that though in the past when there was an increase in the participation by local institutional investors, it had trickled down the positive sentiment to the retail investors, this had not been the case this year with retail interest in trading activities likely to have lagged due to the sluggish domestic institutional interest.
However, the SEC Chief claimed that the dull sentiment is a only a ‘perception’ as the statistics in contrast show otherwise with both the equity and the debt market taken into account together performing exceptionally well during the last one year.
“Twelve months to end October 2013, the All Share Price Index has grown by 7.9% whilst the S & P Index has grown by 9.7% compared to previous year. Market capitalization has recorded a Rs.17.2bn growth,” Dr. Godahewa said adding that total capital infused into the capital market has increased by 127% to Rs.57.6bn new funding whilst the debt market recording a significant growth in value from Rs.12.5bn by end October 2012 to Rs.32.6bn by end October 2013.
Meanwhile, analysts said the main reason why debt market had flourished this year in comparison to the equity market was because many listed companies had taken advantage of the incentive for debt market accorded by the Budget 2013 which had freed interests from instruments such as listed debentures from income tax and only subjected them to a 10 percent withholding tax.
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