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CSE - Potential Value of the Stock Market

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Information about CSE - Potential Value of the Stock Market
Education

Published on September 23, 2014

Author: LalithPerera1

Source: slideshare.net

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Potential Value of the Stock Market
Presented By
Hasitha Premaratne
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Potential Value of the Market Presented By Hasitha Premaratne MBA, BSc, FCCA, FCMA(UK), FCMA(SL), CGMA

Last 12 months

Last 36 months

Markets correct itself You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets. - Peter Lynch Peter Lynch (born January 19, 1944) is a Wall Street stock investor/Author. He is currently a research consultant at Fidelity Investments

External Factors vs CSE – The link Political Stability Global Developments Post War Development Economy Company Results

A Look Back Resilience in a War Torn Market

Since Inception 1 2 3

What War Did to the Market? • Pressure on government budget – more defense spending. • Limit economic growth - Lower foreign and local investments. • Pressure on the currency – low foreign investments means less dollars. • Rise in inflation – cost of imported goods will rise, supply constraints. • Interest rates go up – again limit investments. • All these will lead to a drop in corporate profits!!

During 1993 – 2001 Date Attack ASPI Points % fall 1/5/1993 Suicide attack killing President R. Premadasa -6.1 -1.1 23/10/1994 Gamini Dissanayake - Presidential Candidate, -31.7 -2.9 31/1/1996 LTTE exploded Central Bank at Colombo Fort -0.7 -0.1 24/7/1996 Two bombs ripped in Dehiwala Railway Station -0.3 -0.1 11/11/1996 Two bombs at Slave Island and Killed 19 Civilia 2.1 0.3 15/10/1997 Galadari and WTC -14.8 -1.9 25/1/1998 A Bomb at Sri Dalanda Maligawa -6.6 -1.0 18/12/1999 Botched attempt to kill President Kumaratunge -5.4 -0.9 10/3/2000 38 dead and 50 injured, attack at Rajagiriya -6.4 -1.2 7/6/2000 Minister C V Gooneratne killed -1.4 -0.3 24/7/2001 Attack on the Katunayake Airport -3.9 -0.9

Worst Times are Behind Us • Market has survived 24 years of war! • Still offered strong returns Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years. -Warren Buffett

Since Inception

Then ……. Why Are We in a Bearish Market?

Overvalued??

Poor Investor Confidence • Lot of investors burnt their fingers! • Regulator’s role • Penny stocks - GREG, TWOD!!

Excessive Credit • In 2011 market was excessively exposed to credit • Credit bubbles burst! • Still the problem is not totally resolved

A Widening Budget Deficit • Economic Growth – 6.8% • Inflation – 6.3% • Interest rates – 8.6% - 10.6% • Exchange rate - 131.5 (less than 5% dep) • Budget deficit – a huge challenge

A Widening Budget Deficit • If Budget deficit is out of control? • Government spending can slowdown • Growth can slowdown • Interest rates can go up • Eventually will hurt corporate earnings

Way forward

External Factors vs CSE – The link Political Stability Global Developments Post War Development Economy Company Results

Post War Development • LTTE has been militarily defeated • After 3 rounds of peace talks • Hostilities over 28 years • A permanent end to war • The most disturbing factor to economic growth Presented By Hasitha Premaratne 20

Post War Development • Opens up 2/3rd of coastal belt • Over 27% of the land area • Over 14% of the population – on the increase • Contribution to GDP • North 2.9% • Eastern 4.7% • Potential to improve and boost overall economic growth Presented By Hasitha Premaratne 21

Post War Development • Cessation of hostilities: • Makes SL a safer place to do business • Reduce war related government expenses • A Clear boost to the Corporates listed in the stock market • Northern Election – a big positive • Post war development framework Presented By Hasitha Premaratne 22

Political Stability • A strong government – can implement whatever they want • Never before in the last 35 years • Too much control is also a problem

Global Developments • USA is slowly coming out of recession • EU is slower but we are seeing 1st signs • US tapering of QE is a big thing for emerging markets – but not so much for us • Syria – ME tensions impact oil prices

Macro Developments - Summary • War days are behind us! • Political situation is stable than ever before • Global recession – worst seems to be over • Better than ever before!!

Tackling the Bulls & Bears

Look Out of Horizon • Equities are not the only Investment opportunity. • Look for fixed income returns –listed corporate debt, Bills, Bonds etc • Be aware of the Macro Developments • Shift the portfolio frequently

Average Market Conditions 45% 20% 35% Fixed Income & other Long term Equity Trading - equity

Bearish Market Vs Bullish Market 60% 25% 15% Fixed Income & other Long term Equity Trading - equity 30% 40% 30% Fixed Income & other Long term Equity Trading - equity

Corporate Fund Raising

Corporate Fund Raising

Managing the portfolio • In a Bullish market other stocks may better perform but • In a Bearish market they fall at a faster rate. • Then….. • When macro environment signals changes in direction, shift your portfolio • Get rid of the smaller caps and stick to less risky stocks. Wall Street people learn nothing and forget everything. Benjamin Graham

Exit at the Right Time • Losing Money is the best way to learn the need to exit. • Never hesitate to sell if you’ve got your target price. I've lost tremendous amounts of money in various markets and I think that that's something that makes you better at my job, not worse. Jim Cramer

Lessons from Foreigners Net Purchases/(Sales) (Rs. Mn) 2008 2009 2010 2011 2012 2013 (Jan‐ Jul) Foreign Companies 16,244 2,246 (16,649) (15,227) 38,425 15,514 Foreign Individuals (2,294) (3,035) (9,686) (3,812) 236 657 Local Companies (10,994) (1,363) 29,902 32,438 (20,385) (6,827) Local Individuals (2,957) 2,152 (3,567) (13,399) (18,276) (9,344)

Diversify the portfolio • Don’t limit your exposure to one stock or one sector. • Look for a mix of growth stocks and Defensive stocks • Look for sectors that offer Growth and Stability Wide diversification is only required when investors do not understand what they are doing. -Warren Buffett

Educate the Investors • Market in not a casino • Accept reasonable returns • Have patience • Get expert help – Unit Trusts

Summary • Macro Developments are better than ever before • We have created the problems ourselves • Bulls & Bears both are bad • Educate the investors • A smart investor will profit even under difficult times!!!

Thank You

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