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Factors to consider in INVESTING in CSE now?

5 posters

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ONTHEMONEY


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

Hi all,

The market is poised for A STRONG BULL PHASE primarily because of HIGHLY DISCOUNTED PRICES in terms of valuations are NOW SUPPORTED WITH IMPROVING MACRO ECONOMY as a result of IMF AGREEMENT announced on 26.05.2022 expect to recover the economy. The following are the KEY REASONS 

High level of ECONOMIC SUPPORT and ASSISTANCE by G7 countries [Canada, France, Germany, Italy, Japan, the UK and the United States] with INDIA

IMF during the mission completed during May 9-24 on the economic program in which they agreed to support with lending arrangement

With IMF agreement, CSE can expect FOREIGN BUYING triggered by improved country rating by agencies

Inconsistancy in energy Supply and Power Cuts TO EASE with RAIN & IMF agreement

The overall LOW MARKET PE stands around 6x which is a 50%< discount from historical high levels in last January 2022 [Market PE was 14x]

Negative INTEREST RATE in T Bills [Official inflation by CBSL 34% - T Bill rate 24% = -10% | As per Steve Hanke Inflation 131% - T Bill rate 24% = -107% ] 

Stock market is the ONLY INVESTMENT to BEAT NEGATIVE INTEREST RATE  to date. The recent market recovery is more than 240% p.a. from ASI low of 6900 to 8300

Inflated earnings giving high DIVIDENDS and some stocks DY is above 10%

Therefore, it is likely that positive sentiment would enble bull pressure on FUNDAMENTALLY STRONG STOCKS. Specifically selected counters may be on high interest [USD EARNING COMPANIES having overseas exposure] since there is a chance that high taxes may come up on LOCAL COMPANIES. 

Good Luck

Note - NOT a BUY/SELL or HOLD RECOMMENDATION. Do your own research before making any decision. 

reyaz

reyaz
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

First of all, Hope everyone is having a good day!
Please revisit your reasons for having a bull market soon, Negative interest rates? Policy rates were increased recently so did the TB & TBond rates-- last I saw it was 23% from mid May onwards.

Second of all the engineers' mafia in the CEB has ensured that hydro power will be inefficient no matter how much rainfall we get.ie. have to say, I share the same policy-- the country should come out of this mess, but it is highly unlikely due to these and many more reasons.

ResearchMan

ResearchMan
Manager - Equity Analytics
Manager - Equity Analytics

·  Low debt.
·  with the most cash reserves
·  Earning potential (SR OR USD).
·  Products or services which they produces are necessary for day-to-day living.
·  Have an export market.
·  Have an understanding on the tax.
Corporate Tax with effect from 01/10/2022
Trading, Banking, Finance & Insurance 30%
Export, tourism, Education & Medicare 30%
Construction and Agri processing 15%
Manufacturing  18%
Liquor, Tobacco, Betting and Gaming 40%
IT and Enabled Service 0%
Agriculture, Fish and Livestock (Poultry and dairy industry) 0%       


·Last but not least a good balance sheet.
 
Bull vs bear: Top 5 triggers that may dictate stock market
1.IMF bail out
2.Other foreign aids
3.Boom in the Agriculture, Agri Processing, garments, and plantation industries
4.Strong turnaround in the tourism
5.Export, Foreign inflow and foreign remittances

ONTHEMONEY


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

reyaz wrote:First of all, Hope everyone is having a good day!
Please revisit your reasons for having a bull market soon, Negative interest rates? Policy rates were increased recently so did the TB & TBond rates-- last I saw it was 23% from mid May onwards.

Second of all the engineers' mafia in the CEB has ensured that hydro power will be inefficient no matter how much rainfall we get.ie. have to say, I share the same policy-- the country should come out of this mess, but it is highly unlikely due to these and many more reasons.
Hi Reyaz,

Thank you for your response. 

Yes. Policy rates increased by 700 bps which increased T Bill and T Bond rates. However, the REAL INTEREST RATE is the interest rate adjusted for inflation rate

Real Interest Rate = Nominal interest rate - Inflation rate

Therefore, the prevailling inflation rate stands at 34% and unofficial rate is 133%. Hence, the real interest rate is NEGATIVE for an investor holding on to FIXED term assets class such as T Bill or T Bond in an hyper inflationary environment.

Secondly, SL is currently generating 55% or more from hydro. Additionally, the country has coal till staff level agreement is done with IMF. 

All in all, the Colombo Stock Exchange is oversold pretty much from 13,500 to 7,800 levels now where the MARKET PE is 6.1x and DY 4. 

The ASI was at 8,000 levels when the USD/LKR was at 203/- and now trading at same or below when the USD/LKR is at 365. This means, ASI now logically trading at 4,400 levels if adjusted for USD depreciations from 203 to 365. 

Good Luck

atuts


Stock Analytic
Stock Analytic

Whoever hope In imf bailout it ll not settle in near future
Policy rate also hiking

ONTHEMONEY


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

atuts wrote:Whoever hope In imf bailout it ll not settle in near future
Policy rate also hiking
Hi Atuts,


IMF Sollution

The IMF staff level agreement is due within 3~4 weeks, if you carefully listen to the Governor of CBSL Dr Nandalal, ex CBSL Governor/advisor to the present crisis management Dr Kumaraswamy and Honorable PM. All 3 personalities communicating a single message is what's important.

As per Dr Kumaraswamy, SL can expect foriegn inflows to CSE and Government Securities market with IMF staff level agreement. Additionally, USD 6B bridging finance facility is under negotiation with India.

One can believe nothing will work but SL has hired an external agency to negotiate with bon holders. Therefore, the country should be technically on recovery path with these debt restructuring plans, IMF negotiations and bridging finance. However, immidiate queues reductions would not be possible. IMF staff level agreement would rebuild confidence among investors 

No increase in Policy rates but T Bills and Bonds are coming down

NO POLICY rate increase published by CBSL in May 2022 after the 7% increase in April 2022. 

However, the T Bill have peaked around 24.9% and come down by about 3% during last 3 weeks auction. T Bonds have also recorded similar reduction in most of the tenures.

Considering the above, I don't agree with your statement

Good Luck

reyaz

reyaz
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

ONTHEMONEY wrote:
reyaz wrote:First of all, Hope everyone is having a good day!
Please revisit your reasons for having a bull market soon, Negative interest rates? Policy rates were increased recently so did the TB & TBond rates-- last I saw it was 23% from mid May onwards.

Second of all the engineers' mafia in the CEB has ensured that hydro power will be inefficient no matter how much rainfall we get.ie. have to say, I share the same policy-- the country should come out of this mess, but it is highly unlikely due to these and many more reasons.
Hi Reyaz,

Thank you for your response. 

Yes. Policy rates increased by 700 bps which increased T Bill and T Bond rates. However, the REAL INTEREST RATE is the interest rate adjusted for inflation rate

Real Interest Rate = Nominal interest rate - Inflation rate

Therefore, the prevailling inflation rate stands at 34% and unofficial rate is 133%. Hence, the real interest rate is NEGATIVE for an investor holding on to FIXED term assets class such as T Bill or T Bond in an hyper inflationary environment.

Secondly, SL is currently generating 55% or more from hydro. Additionally, the country has coal till staff level agreement is done with IMF. 

All in all, the Colombo Stock Exchange is oversold pretty much from 13,500 to 7,800 levels now where the MARKET PE is 6.1x and DY 4. 

The ASI was at 8,000 levels when the USD/LKR was at 203/- and now trading at same or below when the USD/LKR is at 365. This means, ASI now logically trading at 4,400 levels if adjusted for USD depreciations from 203 to 365. 

Good Luck

Statistics are only good for getting good understanding at any point of time. The 'Honorable' Prime-minister- now Acting president has not addressed key issues such as distribution of fuel to the Doctors and medical staff and so on, coupled with the CEB engineers continuing their 'let the hydro power generators blow up, we don't care' attitude, I have serious doubts as to how effective committee hearings are going to be in solving these matters.

One thing is clear, the politicians are discouraging efficient state employees and encouraging the "disruptors' to distract everyone from solving the issues at hand. I was in contact with 3 Investors who were willing to invest here. But turns out they don't want to anymore, atleast not until things change on the ground. I'm sure the IMF is also monitoring things on the ground too. The BOI itself is discouraging the foreign investors from coming here, for reasons best known to senior businessmen. Unless things change from the top, nothing else can change.

reyaz

reyaz
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Anyone watches Shark tank? Businesses go in front of Investors to agree on certain amounts of money to invested in return for the share of the business. Watching this show makes it very clear on how much work everyone has to do to Make Sri Lanka Great again. We clearly have to start with wiping out the 'gurus' of government because they are the root cause of the problem, their egos and Unqualified statements have cost the nation more than what anyone could know. Its time to grow a pair and select who we want to vote for from our quarters- as in from amongst people who we can trust, enough party politics!

sheildskye likes this post

sheildskye

sheildskye
Manager - Equity Analytics
Manager - Equity Analytics

I believe that Ranil Wickramasinghe has the know how and the Experience and the right people for the job so Sri Lanka should let him prove his worth for the next few months atleast!!!

IF NOT HIM, THEN WHOM?

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