Transcription
So, welcome to Business Detective. Uh, last time we spoke, you were spot on on the ASPI. So, my first question to you is, where do you see the ASPI closing by the year-end, and what are the two key drivers behind that view?
Yeah, thank you, DH, for having me again. Uh, yes, uh, all the fundamentals are in position, uh, for the market to even reach 30,000 by the year-end. That's about a 25% uh, gain will be from the current close to the 24,000 mark. We are just 200 points away from the all-time high again, which we reached about last month. Uh, the catalyst will be like, uh, the earnings are still good, right? And the government policies are in favor with the IMF reforms that are taking place, so there's no deviation on that. So, the fiscal policies to monetary policies, all are, uh, in good shape. You can see, got a lot of revenue is coming in, uh, so the taxes are coming in, so the government has, uh, made their foundation very strong now. So, you know, earlier we used to have a lot of SOEs, so loss-making, now those are all eliminated. Only the Sri Lankan Airlines is there, so that's also now being, uh, negotiated for some kind of a rescheduling on that one. Other than that, most of the loss-making companies are not there, and they used to have like, uh, uh, quite a lot of borrowings, even the state banks. Now, all that have become positive. Now the government is sitting with over 1 trillion rupees cash, that's why with this DWA came in also, they were able to manage, uh, the situation. So, yeah, so same way, the listed companies are also making good profits. Uh, last year, of course, the December quarter, they had the one-time, uh, ISB reversals. Uh, this time, the banks are, you know, a little bit, uh, short compared to the last, last year, but quarter-on-quarter, they are still all right. So, likewise, most of the companies are, uh, the same numbers we can see that has come during the last period.
India, India, since you mentioned Sri Lankan Airlines, what is the way forward in your view for Sri Lankan Airlines? Ultimately, it has to be sold off. I don't think so managing will solve the problem because, you know, time to time governments can change, you know, there won't be a permanent solution. So, the ultimate thing should be properly put in place first to get the right pricing or whatever, and then, uh, quietly should be sold to, uh, a strategic good partner who will manage the airline properly.
Uh, moving back to the market, is the current rally liquidity-driven or earnings-driven?
Uh, it's both, the earnings and liquidity, as you, uh, the turnover levels are quite high. You can see about 6 to 9 billion range, the turnovers are happening. Uh, so the money is there in the system. Uh, lots of money in the fixed deposits and current accounts are being slowly shifted into the equity market. Uh, and lots of accounts are being opened on a daily basis, that we can see. Uh, so people are coming to know about the stock market returns, which already for the last, since post-COVID, close to 500% it has gone up. Uh, along with, we had three major, uh, problems in the country, uh, the COVID, first one, the second was economic crisis, and the third was the cyclone DWA. With all those three problems, still the market has done about 475 to 500% return in the last 5 years, and, um, yeah, and almost we are at close to the all-time high still.
Uh, which sectors do you think will truly deliver shareholder value, uh, going forward?
Now, the construction sector will be a good one, uh, because a lot of, uh, construction, uh, didn't take place earlier. So, those delayed ones will happen, and the government is also didn't spend money on the infrastructure earlier. So, now they are allocating money, and this time, of course, they'll have to spend that money, uh, on infrastructure. So, that's one area that will be good. The other one can be tourism. Tourism-related companies will do well because tourism numbers also doing, uh, great. Uh, then, of course, the steady will be the banking, will be always there, and, and the manufacturing. So, those are the main areas I would see.
Uh, last time you gave me a prediction for ASPI, but what is the prediction this time, say, 12 months down the road, where do you think it will be?
So, say by next, uh, first quarter next year, I think we should be able to touch the 30,000 mark. That's what I feel because earnings are good. Uh, going forward, maybe rate, credit ratings can be upgraded during this period. Then, a lot of SOEs can be, uh, I think there are, parliament will be debating on those and they'll pass some laws on those things. So, a lot of SOEs can be listed. Uh, likewise, there are many good positives that are going forward with all the good fundamentals. So, this can carry through with a 20-25% return from here.
If you're looking for dividends, what are the stocks you should invest in?
Uh, dividend stocks, there are stable ones are there. The banks are giving now around this period, in the banks, declaring quite a lot of dividends have been declared currently. But otherwise, there are like lubricants and the tobaccos and all those things are the steady ones. But there are some, uh, um, um, renewable energy companies also give steady, uh, dividends also.
Okay. Then for capital gains, for a new investor, where, where should they put their money in?
Yeah, I, I would, I, I think for the next 6 months, one year, will be more on the construction and the, and the tourism-related will be the main counters that they can give them a better returns.
Okay. Would you selectively recommend any mid-cap, uh, beaten-down stocks which are worthwhile looking at currently?
I won't go into specific any of the stocks overall. And think, uh, there, if you do your, uh, homework and if you do your research, you can find there are lots of companies still are trading at, uh, five, five P or below the price to book, uh, price to book values. So, if you really go through those funds, I think you can, there are 100-200% gains also you can get.
Okay. Uh, have you seen an influx of, uh, foreign investment also into the CSE, or is it basically still domestically driven?
Mostly, it's still domestic. Uh, actually, it has been outflow during this year also. Within the 2 months, we have seen almost about 15 billion outflow, and last year also about 35 billion. Uh, it's natural because the markets have gone up so much. So, they reposition themselves. They want to take out some profits. It's not that they are totally exiting from the market. Uh, this always happens when the market goes up, they will come, uh, they'll take some profits out, and they'll come back again. Especially when the ratings are up, they can come in a much bigger way. We are not seeing any foreign inflows into the market yet.
Do you think the CSE is doing enough to mobilize, uh, foreign investors into the market?
They are doing their bit. Uh, I think they had a few investor forums, but again, those were mostly targeted, uh, to the locals who are living in those countries. Uh, some of the funds also, they have been meeting, but, uh, at this moment, not yet. Maybe once the ratings are up, only I think that will be the right time to go and target the foreign funds.
With gold prices and silver prices doing well, do you think there may be a shift from, uh, money from the market to commodities and products like that?
Uh, both have gone up already, so it's at all-time highs. So, I don't see any further. Of course, there might be still gains, but going in at this time, it can be risky for an investment purpose. They should have gone in much earlier if they wanted to, yeah.
Uh, what is your view on crypto?
Crypto, I don't follow too much, but again, it's not much fundamentally, uh, supported. But maybe the future, as a currency, lots of people are saying yes, this will be the future. So, there will be some, uh, plays on the cryptos.
Okay. What do you see as the single biggest risk for the CSE going forward in the next 12 months?
Uh, we are on the IMF program, so we have another one more year to complete the program. So, if there is no any major deviation from whatever that we have followed the policies and whatever the principles, the discipline that was there, if they don't go too much out of this track, and that's where they can go wrong. That's one thing. If they don't, if once the IMF program is over, and they go back to, you know, giving lots of, um, incentives or kind of a, um, you know, consumption-driven kind of, uh, policies that they change, that that can, that can be the major risk. But otherwise, I think they will follow. They have seen the good effects of the IMF program, so I hope that they will continue the same program.
Okay, my final two questions are. The first question is, why is the CSE still so attractive to retail investors?
The valuations, the fundamentals are really strong. Uh, well, at the moment, the P/E only market P is only at 11 times. If you see the regional P/Es are like, you know, 15, 20, 25 times it's trading. So, because of the economic crisis and certain things that we went through, we have taken our time. So, still we are on a low base. So, there's a long way to go forward. That's why the last 3 years it has given good returns in the market, and this can continue, and this year it can continue with good returns. And not only for this year, now it has been more on the stability path that we have been going. Now we are slowly getting into the growth phase. So, everyone has been saying, you know, 5% is not enough growth, right from opposition to policymakers to government and economists, everyone has been saying we should hit the 7, 8, 10% kind of a growth rates. If that kind of numbers starts coming in, you know, sky is the limit even for the stock market. So, so much of a possibilities are there.
In this also, with so much liquidity in the market, why are we seeing very few IPOs yet?
IPOs, because maybe one can be, the pricing, still the, you know, market P is at only at 11. So, some people might be looking at thinking the valuation-wise, they won't be getting the right price yet. Others, still not much about the awareness and, uh, other thing can be like family-controlled businesses, still they are not comfortable still to go to a public, uh, listing. So, these things like to be educated, and time to come with more SOEs and all listed market capitalization increasing, people will understand and slowly will come into the market.
My final question to you is, what advice do you give retail investors sitting outside the Western Province to come and invest in the market?
Yes. So, it's a good time. If you have already missed earlier rallies, still it's not too late because still people think all-time high, miss is a, this is the peak. I would say no, I don't think so because fundamentals are good. P ratios are still at 11. You can easily go to 15 and above. So, even 15, if you're saying, it's another 30-35% can go up. So, that's the market side. But individual companies, if you select, there are companies which can give you 100 to 100% kind of returns. Forget about the 100-200, at least you can get 20% return. It's still is a better return than the fixed deposits which you are getting at 7-8%, and still you have to pay tax on that, and end of it is only 5% you might get, and your inflation may be 3-4%, and it's nothing much left out of that. So, the right way to go forward, if you want to create wealth, I think the equity market is the right place for the next 5-10 years to go. I think this equity market will do well.
Thank you to us. It was great talking to you.
Thank you very much.