By Amila Muthukutti –

Amila Muthukutti

It is due to the misconceptions against the National People’s Alliance and its leader Anura Kumara Dissanayake that were spread among the public by their political opponents that investors at the Colombo Stock Exchange (CSE) took precautionary measures by sidelining from their usual investment decisions. Those misconceptions ranged from acquiring private businesses to fixed deposits. That is why, even though interest rate was on the decline, people hesitated to invest in the CSE, resulting in considerable selling pressure. This state of affairs was intensified, because investors were unaware of their transition from socialism to neo-liberalism which now seems to be in progress.

Once Anura Kumara Dissanayake was elected as the president, his maiden speech itself was able to shatter the misconceptions among the investor community. Hence, investors, mostly local investors who followed a wait-and-see approach, due to uncertainty, started buying shares in the Colombo Stock Exchange. That optimism has taken the All-Share Price Index (ASPI) to an unprecedented level which sets a record all-time high. Accordingly, since the election of Anura Kumara Dissanayake, market capitalization has risen to Rs. 5.13 trillion from Rs. 4 trillion. What is the secret? Let’s discuss.

You can see how All Share Price Index has risen from 23rd September to 18th December. This revival at the Colombo Stock Exchange can be identified with several factors.

Political stability

Unlike leaders who were constitutionally elected, leaders elected by the people are most welcome in the economic and political platform. Having more than two third majority at the parliament, the president and his cabinet can steer the country towards what is promised in next five years. Political stability leads to economic stability, especially due to the fact that it assures policy consistency. Even if Ranil-pro elements say here and there that Anura-led NPP government continues the same initiated by the former president Ranil Wickremesinghe, what is intentionally hidden is that the former president followed agenda put forward by the International Monetary Fund (IMF). For instance, can you think of why they passed the new Central Bank act in September last year which curtails money printing leading to people-pleasing public expenditure. Moreover, the anti-corruption bill which was passed in July last year cannot be an exception. These are the things that typical politicians never do, unless influenced by the IMF. Hence, when deviation from the IMF program does not happen as expected, politically motivated elements scream from the rooftops that Anura is following Ranil’s footsteps.

Corruption free

Needless to say, that the NPP government has significantly changed the political culture of the country. That change flows from top to bottom. Whenever corruption is free, genuine entrepreneurs are mostly benefited. What dealers trying to be branded as entrepreneurs have done thus far has been that they pocketed money which should go to the treasury and became rich. That is how only a handful of dealers have become rich, while the nation is poor. If entrepreneurs have genuinely added value to the economy, that country should have been rich. We have a history where politicians got caught red handed while taking bribes from foreign investors. Hence, when that culture is no more, even foreign investors will be willing to invest, given the expectation regarding possible credit rating upgrade in the near future.

Low and stable interest rate

For business decision-making, it is paramount that tax and interest rates are not highly fluctuating. When the interest rate which represents borrowing cost does not frequently fluctuate, investors can make their forecast and step into new ventures. What happened during the economic crisis in 2022 had been that uncertainty led to higher risk premium attached to the interest rate. That was how, T Bill rate was so high that almost every investor went into fixed income options. However, that uncertainty has almost completely gone, detaching itself from the interest rate. Accordingly, we are able to see a stable interest rate. Stable and single digit interest rate is highly favorable for the stock market, as retail investors disappointed with low fixed deposits rates and High Net worth Investors (HNI) disappointed with low T bill and Bond rates are coming into equity investment, resulting in a boom period in the CSE again.

Foreign Exchange

Unlike interest rates, it is highly unlikely that foreign exchange rates can be forecasted. Ranil Wickremasinghe said during his presidential campaign that if he would not be elected as the president, a US Dollar would be LKR 400. Nevertheless, rupee started appreciating with the election of Anura Kumara Dissanayake as the president. It is true that exports are negatively affected by the rupee appreciation, due to exchange losses. Stability of the foreign exchange rate is required for budgeting. Foreign remittances were USD 530.1 million in November, totaling the year-to-date receipts of USD 6 billion rebuilding reserves up to USD 6,462 million.

It is with all these positive factors and expectations that local investors are active in investing their wealth at the CSE. Being a leading indicator, All Share Price Index of the Colombo Stock Exchange has been on an upward trend from the day AKD was sworn in as the 9^th executive president up to date. Everything is so far so good in national interests. As the president steers the economy, making a win-win situation and proper balance between IMF agreement and citizens of the country, the economy is believed to be on the right track to get rid of bankruptcy and ultimately reach the prosperity.