Besides tax incentives, CSE Chairman Dumith Fernando told Regulation Asia the exchange has initiated a five-pronged strategy to bolster the capital market.
The CSE (Colombo Stock Exchange) says it will push tax incentives in the November budget to entice foreign investors to invest in Sri Lanka’s capital market.
“We will send a formal proposal before the budget for certain tax incentives. This will be to bring the foreign demand back,” CSE Chairman Dumith Fernando in an interview with Regulation Asia said.
Foreign investors have recorded a net outflow almost every day since January this year (barring the 52 days closure during the nationwide lockdown starting March 20). Noting that foreigners look for attractive capital market tax regimes, Fernando said the goal is to bring the CSE to the top of this list to draw foreign investors.
To better position the CSE, Fernando also said the exchange has initiated a five-pronged strategy. The first prong is to enhance the valuations of CSE stocks. Currently, CSE price to book valuations are around 0.9, compared to India’s 2.8, Vietnam’s 1.9 and Pakistan’s 1.5.
Second, the exchange is looking to lure new listings to boost market liquidity. “We are in discussions with the Board of Investment, Export Development Board and [state IT agency] ICTA to identify why companies under their remit are not listing and then jointly give them incentives to do so,” he said.
“We have developed a survey on barriers to listing in the CSE. We will focus on drawing listings of tech sector firms which are not at a satisfactory level.” Fernando said, adding that continuous discussions are also underway on listing state-owned enterprises.
The CSE will also campaign for listing more debt. “This is a really good time to look at better rates through debentures which corporates can benefit from,” Fernando said.
The third prong involves enhancing the unit trust and insurance industries so that more equity-based products can be issued and sold to investors.
The CSE’s fourth initiative is to push financial literacy in Sri Lanka. “We see many people not being aware and not knowing how to access the market, all the while seeing it as too risky. We want to promote more financial literacy so that more retail investors can actively participate in the market,” Fernando said.
In this regard, the CSE’s digitisation initiative, scheduled for its launch next week, will be a big game changer, he added
The final prong will be to develop trust with the CSE’s main stakeholders – issuers, investors and the public. “We are trying to find ways to resolve client disputes quicker,” Fernando said, noting that the impending launch of DvP (delivery versus payment) settlement is a big part of building trust with foreign clients as well.
Fernando has plans to get the CSE operating profitably within the next three years.
The strategic plan, backed by the new government with a ministry dedicated to developing the capital market, will be a major boost to develop a vibrant market for all investors, he said.
According to Fernando, the CSE’s value proposition is also very important in the context of the national growth agenda. “We want to revitalise the long-term capital formation and risk mitigation in the stock market,” he said.