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Tuesday, November 19, 2019

Investing in Stock Market (Colombo stock exchange)

8:28 PM 0
Daily Mirror අන්තර්ජාල පුවත්පතින් උපුටා ගන්නා ලද්දකි. නවකයින්ට ඉතාමත් ප්‍රයෝජනවත් යයි හැඟුනු නිසා මෙහිද පළ කිරීමට සිතුනි.

Now You can read more about Colombo Stock Exchange

If an investor wishes to buy or sell shares through the Stock Exchange, the first thing that he/she should do is to open a Securities Account in the Central Depository System. 

Central Depository System 
The Central Depository System (Pvt) Ltd. (CDS) is a depository for all securities traded on the Colombo Stock Exchange (CSE). It also handles the post trade clearing and settlement of the secondary market transactions on the CSE. The CDS was incorporated in 1991 and it is a fully owned subsidiary of the CSE. The CDS is registered as a Clearing House by the Securities and Exchange Commission of Sri Lanka (SEC).  This registration is renewed annually.

The CDS functions as a depository to hold securities in trust on behalf of shareholders of companies and provides depository, clearing and settlement services for equities (shares, preference shares, warrants)  and fixed income securities (Corporate and Government Debt) . Securities are held by the CDS in a dematerialised (electronic) form. The Securities and Exchange Commission of Sri Lanka has made it mandatory to convert any physically held share certificates to electronic form by 31 December 2011.

The CDS opens and maintains CDS accounts on behalf of account holders through 43 participant organizations of the CDS. The CDS has granted participant status to 27 Stock Brokers of the CSE and 16 Commercial Banks (Custodian Banks). The participant organizations have access to all CDS services. Account holders are required to use the services of participants to access the CDS services and it is possible to use more than one participant.

Opening and maintenance CDS Accounts
If an investor wishes to buy or sell shares through the Colombo Stock Exchange he/she should open a Securities Account in the CDS through a Participant organisation (a stockbroker or a custodian bank). The applicant has to submit the duly completed Client Account Opening Forms together with the relevant supporting documents to the Participant. After scrutinizing the account opening documents inclusive of the supporting documents the CDS will register the applicant in the CDS system.

Once the registration process is completed the CDS system will generate an acknowledgement slip with the Client Account Number and this acknowledgment would be handed over to the Participant confirming the CDS account opening. Client account number will be the national Identity card number/ passport number of the client along with the broker code.

Registration of ownership

Registration of ownership in the CDS is automatic on conclusion of a transaction of shares in a company listed on the CSE. The quantity of shares purchased is instantly credited to the CDS account of the purchaser. The Companies Act has provided for the person who purchases shares in a listed company to be deemed a shareholder in that company.

Documents required to open CDS account

Residents with normal identification

1. A clear photo copy of the National Identity Card (NIC).
  •  If the NIC is not available a copy of a valid Passport as at the date of the Account being opened at the CDS.
  • An account holder can open CDS accounts with more than one participant
  • In the event an existing CDS account holder registered under a NIC has lost/misplaced the NIC and is unable to submit a copy through the new participant, the CDS will accept a copy of a valid passport which bears the NIC number. This should be submitted together with a sworn affidavit stating the fact that the NIC is not available.
  • In the event, both the NIC and Passport are not available, a copy of the Driving License should be submitted, together with an Affidavit confirming the fact that both NIC and Passport are not available.
2. Proof of residency document Such as an electricity bill, telephone bill etc

Non-resident Sri Lankans
In the event a resident Sri Lankan becomes a non resident that person would have to open a new (Foreign) account. In such an instance the following documents relating to opening a foreign Client account needs to be submitted.

A copy of the Sri Lankan valid Passport.

Proof of residency document as per the Rules issued by the Financial Intelligence Unit of Sri Lanka
SIA (Securities Investment Account) account details with documentary proof.Apart from this there are some other CDS forms that the investor has to fill.

The CDS offers the facility of changing client account information.

CDS statements
CDS will forward to the account holder a statement if such account was active during a particular month (monthly statement) and will  forward to the account holder a quarterly statement if such account was active during the preceding three months (quarterly statement). An active account is an account with at least one transaction (purchase/sale/deposit/withdrawal/transfer) during the period/s referred to above.
CDS will forward a statement annually as at 31st March  to inactive account holders (accounts with no transactions for a period of 12 months) having credit balances.

Where an account holder wishes to change any particulars in the account, the account holder shall submit a letter indicating the desired changes together with any supporting document (relevant to the particular change) to the participant. The Participant shall verify the accuracy of information provided by the client and authenticate the signature before submitting the documents to the CDS. The CDS shall effect changes after verifying the documents submitted.

Locked account
The CDS also provides a service whereby shareholders of securities who do not wish to trade their securities, to "lock" their securities in a separate locked balance in their own CDS accounts. Once securities are  "locked"  in this manner such securities would not be visible to the CDS Participants (Stock Brokers and Custodian banks) thereby maintaining the confidentiality of the information and also safeguarding the account holder/shareholder from any possible unauthorized transaction by a Stock Broker. Trading on locked balances would be suspended.

Securities could be unlocked from a locked balance and transferred to the trading balance of the CDS account holder only with the written authority given by the CDS account holder to the CDS through the relevant Participant.( (Stock Broker and Custodian bank)

Dematerialization Service (Deposit of securities)
Dematerialization is the process by which the physical certificates of a shareholder of a listed company are converted to an electronic form.

A shareholder could only sell securities that are held electronically through a securities account in the CDS. The process of dematerialization requires the CDS account holder to submit the physical certificate and duly signed transfer form to CDS through the relevant CDS participant. The CDS will deposit the quantity of securities to the relevant securities account the same day.

Rematerialisation Service (Withdrawal of securities)
Rematerialisation is the process by which the electronic securities balances of a shareholder of a listed company get converted back to certificate form.

A CDS account holder could obtain a securities certificate for purposes of pledging. The Account holder is required forward the relevant duly signed transfer form to CDS through the relevant CDS Participant. The CDS will withdraw the shares from the relevant securities client account and forward the relevant documents to the respective company secretary. The company secretary is required to submit the relevant securities certificate to CDS before expiry of seven (07) market days of lodging a valid transfer with them. The CDS Participant is then required to collect the securities certificate from CDS and forward the certificate to the account holder.

Transfer service
A CDS account holder has the facility of transferring the securities between securities accounts opened through different CDS Participants. Gifts are possible between immediate family members and have to be approved by the Securities and Exchange Commission of Sri Lanka. Such transfers attract a stamp duty. A CDS account holder who wishes to transfer securities must forward the relevant transfer documents through the relevant CDS Participant.

Corporate Action Service
The CDS facilitates the distribution of corporate actions by providing the entitlement schedules to the Company Secretary or Registrar enabling the Company Secretary or Registrar to identify the shareholders who are entitled to the corporate action. Distribution of dividends is handled by the Company Secretary or Registrar. In the case of Stock Splits or Rights issues, the new shares will be directly uploaded to the respective account holders’ securities accounts in the CDS.

The transmission of shares to the heirs of a deceased shareholder is done by forwarding the necessary documents such as the probate or letters of administration to the CDS through the CDS Participant and registering the same with the relevant company secretary. Stamp Duty is payable to the Department of Inland Revenue for such transmission of shares.

A facility is available whereby account holders could nominate another person/s to receive shares in the event of a death of the account holder. This has been provided for by law through an amendment to the civil procedure code. The transmission of securities where a nomination has been made eliminates the need for legal documentation such as a probate or letters of administration and expedites the process of transfer of shares to the named beneficiaries.

Equities are settled on a trade by trade basis followed by funds settlement 3 days later (T+3). Stock is transferred on trade date and cash transfers are on T+3. Settlement cycles are flexible for Government securities and Corporate debt securities at the discretion of the parties entering into the trade. Cash settlement is through one of the four commercial banks appointed by the CDS to act as settlement banks.

Instructions to CDS
All Instructions to the CDS have to be forwarded to the CDS through the relevant participant. All instructions to the CDS should be in the relevant CDS form except in the case of address changes where a letter signed by the account holder should be furnished with a proof of residency document.
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Thursday, November 7, 2019

CSE ‘Emerging Bull’ in the world of Bears!

7:38 PM 0

NDB Stock brokers in the special report say amidst gradual revival, two-year bull run on the cards; valuations attractive; corporate profit growth to bounce back in 2013 in a resilient economy
NDB Stockbrokers in a special research report that is likely to move investor sentiments for the better is upbeat of a revival in the currently-bearish stock market as well as a rebound in corporate earnings from next year onwards.
Boldly titled ‘Emerging Bull in the World of Bears,’ the NDBS stated: “In view of the stabilizing economic conditions, we remain positive on the profit growth prospects over the next two years.

While we estimate that currently, the overall Sri Lankan market is trading at a forward P/E of 11x, we expect it to increase to 15x with the improvement in sentiment over the next two years.”
Recalling that in its previous review released in May a forecast was made that the bull run would commence from the latter part of 2012, NDBS said since then the ASI has gained 6% (from 5,048 to 5,331).
In line with the positive factors, “we maintain our ASPI target of 9,000 by the end of 2014. However, the sentiment is likely to improve gradually and pick up steam by 2013H2 in view of the prevailing uncertainty in global economies and high domestic interest rates.”
Its latest report also predicted corporate profit growth to bounce back from 2013.
After two years of exceptional growth (of 75% and 25% respectively) in corporate profits, 2012 is seemingly a year of consolidation with profits remaining flat from the previous year up to September.
NDBS expects the trend to continue until the rest of the year and accordingly revised downwards its previous profit growth expectation of 10% for 2012. However sectors such as banking, hotel, telecommunication and food and beverage have recorded appreciable profit growth, it noted.
“We maintain our expectation that the profits would bounce back in 2013 and 2014, to record a growth of 20% and 15% respectively. This is in view of the improving economic stability resulting from the measures taken in 2012H1,” NDBS said.
Emphasizing on attractive valuations, the broking firm said Sri Lankan equities were attractively priced compared to regional emerging/frontier markets.
“While according to our estimates the Sri Lankan stocks are trading at a forward P/E of 11x, the regional markets are trading at a forward P/E of 12.8x. With the expected improvement in profitability and economic stability over the next two years, we maintain our expectation that the forward P/E would reach 15x with improving investor sentiment,” NDBS pointed out.
It implied that attractive valuations, as well as future upside in relation to regional peers, were key reasons for record net foreign inflow into Sri Lankan equities so far this year.
“The foreign investors have been bullish on Sri Lankan equities since early 2012, with net foreign inflows to the stock market reaching Rs. 33 billion up to October,” NDBS said.
As of last week, as reported by the Daily FT, the net inflow had crossed the Rs. 37 billion marks. This is in comparison to net foreign outflows of Rs. 26 billion and Rs. 19 billion in 2010 and 2011 respectively.
“This indicates that the value investors perceive upside potential in Sri Lankan equities in view of positive policy measures taken in 2012 and the prospects of impressive growth over the next few years,” NDBS said.
Noting that demand for equities was quietly accumulating whilst supply was slowing down, the broking firm said Initial Public Offerings (IPOs) and secondary equity issues (rights issues, etc.) by listed companies had slowed down in 2012 compared to 2010 and 2011.
As a result, NDBS said the investable funds within the economy have been accumulating and have been directed to short-term fixed income instruments to a large extent, in view of the relatively high-interest rates. In addition, with the increase in interest rates and triggering margin calls, the utilization of margin trading (leverage) would have reduced significantly over the last 12 months.
“We feel the equity selling pressure has been reducing substantially over the last 12 months. Simultaneously, the investable funds have been accumulating, which could flow into the equity market if the interest rates come down (including an increase in margin trading activity) or any other event occurs that could boost the sentiment of the equity market,” NDBS added.

Adopted from 

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Thursday, August 8, 2019

Essentials for successful investors

8:21 AM 0

Being a successful investor requires skills similar to those of a successful chef. Every cookbook stresses the need to read the recipe before beginning, make sure you have all the ingredients and do not deviate from the recipe until you have practiced it several times. 
This wonderful advice, if adhered to in investing, will virtually guarantee an improvement to your investment return. You have to learn the strategies and secrets to investing, to invest smart. Investing can be fun and exciting. It could also be tremendously profitable. It involves skill and hard work. 
There are successful investors who have made millions investing and they have done so by looking beyond investing. Successful investing is about being successful in life and given below are some of the lessons that can be learnt from these successful investors.   

Be observant
Successful investors are not inherently superior people. They are simply savvy at observing life. They are very good at looking under rocks for opportunities, trends and cultural shifts that the rest of us don’t see. Or, where we just see a rock, successful investors see financial opportunity. 
These people look under more rocks than anyone else. And they know which ones of these rocks will unveil value that should make the stock rise. They always think of investing. When they listen to news or read the paper they think, “How will this event affect my investments?” 

Never think being a successful investor is just picking stocks 
Being a successful investor requires timing, proper asset allocation and patience.

Learn basic accounting
Much of stock analysis is based on what companies are worth. To know the worth, you need to be able to read the financial statements and then be able to interpret them. Free cash flows, return on equity, price to earning and sales ratios should be second nature to you. 
While you don’t need to take an accounting class (accounting courses often don’t teach how to evaluate a company), it is good to read a book on accounting that focuses on how to use accounting to evaluate a company. A book on finance for nonfinancial managers would be an excellent starting point.

Learn basic charting 
Charting will help you spot trends and time your purchases.

Find out where to get information
We live in an information age. Just about anything you need to know is readily available on the World Wide Web and at your local library. Not only you need to know where to get the information on the web or in your library, but you also need to become proficient at sorting out useful information from noise.

Have clear investment goals
What are you trying to accomplish? How long will this money be invested? What are the tax consequences? Never invest unless you have a plan, unless you know exactly what you are trying to accomplish. How much do you need to save? What return on investment do you need to meet your goal and time frame? 
Too many people invest aggressively in a way that could lose them money, even though their plan said they didn’t need huge returns. They jeopardize their whole plan if they lose money, whereas they would have been fine if they took the low-risk approach and stuck to the plan. 
Truly understand your risk tolerance 
You and I have lied to ourselves about this before. You say you can stand risk, but only if you make money, right? How will you feel if you invest Rs.100,000 and the day after you write your investment check, your account drops 30 percent to Rs.70,000? It happens fairly often. Are you really ready to weather such a market drop? Can you still follow your discipline? 
The bottom line is, never invest without knowing the risks versus rewards ratio. What are the chances of the investment going up and by how much? What are the chances of the investment going down and by how much? Embrace risk – without it, there is no profit.

Forget what the stock price was a year ago
Forget what you paid for the stock. You will learn that if you worry about buying a stock because it’s too high, or you don’t want to sell a stock because it’s either not up enough, too far up, or down, you focus on the wrong stuff. Evaluating a stock has no bearing on what it was worth a year ago, or what you paid for it.

Stick to your discipline and don’t become emotional
This is easy to write, harder to say and even tougher to do. However, maintaining a coolly disciplined, unemotional view of your investments will make you a better, richer investor. If you decide to be a value investor, stick with your value discipline through thick and thin. 
Understand, I do not recommend you choose only one discipline. Many investors use several disciplines. But what you should not do is, being frustrated with the one-month or one-year return on your value investments and then switch willy-nilly to momentum investments. Time rewards your tenacity and discipline. 
Don’t invest in fads. You’ll continually hear new theories. For example, buy the lowest priced S&P Sri Lanka 20 stocks with the highest dividends. If everyone begins to do this, the anomaly that might have existed is blown. Finally, don’t get emotional and don’t second guess yourself. The one time you second guess is the one time you’ll miss the ‘big one’.

Level with yourself
You aren’t going to pick every winning stock. You can be right and wrong because if you invest properly, you probably need to be right only 55 percent of the time. If you ask successful investors what percentage of stocks they actually lost money on, they would most probably say sometimes around 40 percent or more. 
Then how do they still maintain such an incredible track record? Their response would be- the stocks they lose on generally go down less than the gain on the stocks that go up. So, if you are beating yourself up, if you had one losing stock, you shouldn’t anymore.
You’ll never completely figure out the market. There is no single key to the market. It is ever changing and it is rarely logical. Have you ever seen a stock that just had the greatest news but went down? Why? You will be given hints but remember that no hard and fast rules exist. And never forget that every time you think you bought a winning stock, someone was willing to sell you that same stock.

Invest for long term
Attempting to guess short-term swings in individual stocks or the economy is a difficult, almost impossible task for even the best stock pickers or economists.

Remember, cash is king
Regardless of the market you’re in, cash is and always will be, king. Even if you’re earning only 4 percent or 5 percent, you need to always have some cash. Cash is necessary to buy more stocks, limit losses and be ready for a good deal. Never invest 100 percent in stocks. 

(Source: Secrets of the Investment All-Stars, Kenneth A. Stern)
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Wednesday, July 3, 2019

CSE says goodbye to 13-year-old Milanka

5:43 PM 0

The Colombo Stock Exchange (CSE) yesterday announced it would discontinue with the Milanka Price Index (MPI) from 1 January 2013 following the launch of the S&P SL 20 Index early this year.
The MPI was introduced in January 1999. The CSE’s benchmark is the All Share Index (ASI).
Jointly launched by the S&P Dow Jones Indices and the CSE, the S&P SL20 follows a transparent and robust construction methodology in conformity with global best practice.
CSE said constituents of the S&P SL20 include size as measured by float adjusted market capitalisation, liquidity as measured by the last six month daily average turnover and the number of days traded, in addition to financial viability.
The S&P SL20 currently represents 54% of the total market in contrast to the MPI’s comparatively lesser representation of 22% as at 12 November 2012.
Additionally, comparative advantages of the S&P SL20 counts, its ability to act as a credible, investible index for both global and domestic investors. It also forms the foundation upon which products such as Exchange Traded Funds (ETFs) can be based on, the CSE added.

Adopted from DailyFT
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Saturday, June 15, 2019

Prospects for 2013: Market interest rates to adjust downward

9:59 AM 0

The overall market interest rates may revise downward this year since the borrowing cost of commercial banks will decline due to the reduced policy rates, a report by Asha Phillip Securities Ltd said.
The report which projected the economic prospects for 2013 said that downward interest rates will stimulate the stock market activities as a shift in investments from fixed income securities to high yielding investments will be witnessed. “Inflation is also expected to fluctuate within current levels amidst volatility in food prices which would result in the real interest rate falling further. Therefore, investors will search stock market investments with relatively sound earnings outlook of most of the listed companies,” it said.

According to the report, the banking and finance sector is expected to grow at a faster pace in 2013 against the growth levels recorded in 2012 supported more with the liberalized credit ceiling coupled with the expected growth in asset quality. “Moreover, the reduced interest rates will provide a hefty cushion on the bottom lines of companies with relatively high gearing via reducing interest cost, driving to record an upsurge in earnings.”

The report predicted that given the pick-up in consumption levels in the economy together with the growth in tourism industry, a fresh round of demand for food and beverages will happen, enabling the food and beverage sector to experience a prospective year. Further, the government’s plan on promoting a “Sports Economy” concept will also intensify the growth prospects of the sector, it added. It also said that rebounding of construction activities amidst relaxed interest rates and increased accessibility to credit will create opportunities for construction companies, generating opportunities for local construction material manufacturing sector such as cement and cables with the support granted by the Budget 2013 via offering tariff differentials at the point of custom.
The report was skeptical on the tea plantation sector saying that a wage revision is knocking the door. “Tea plantation companies may face another round of challenge with the upcoming wage revision in mid-2013, eroding their cost factors. Rubber and palm oil driven companies may operate with minimum hit against this move due to relatively low level of labour requirement compared to tea sector.”
Adopted from Sunday Times 
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Thursday, May 16, 2019

CSE to revise debt market rules

8:06 AM 0

The Colombo Stock Exchange (CSE) is currently in the process of amending regulations pertaining to the listing of debt securities, according to CSE’s Assistant General Manager of Regulatory Affairs, Renuke Wijayawardhane.

“We are currently in the process of revising some of the Listing Rules. However, nothing has been finalised at the moment and we are still at the discussion stage,” Wijayawardhane said.

Amendments to the current regulatory framework follows a spate of new listings of corporate debt, mainly debentures, on the CSE by listed and unlisted companies, seeking to capitalise on generous concessions granted in Budget 2013.

Proposals in question include the exemption of the withholding tax on interest income earned by investing in bonds and debentures listed with the CSE.

Speaking to Mirror Business about potential barriers to the establishment of a vibrant corporate debt market in Sri Lanka, Wealth Lanka Management (Pvt.) Ltd Chairman Mangala Boyagoda highlighted lack of information and regulation on unlisted companies as a potential challenge.

“Recent steps taken to promote the creation of a corporate debt market are very positive. However, statistics on unlisted companies are lacking. So, it’s very difficult to get a clear understanding of the depth of the Sri Lankan corporate debt market,” he said.

Boyagoda also called for more stringent regulation of unlisted companies, which expect to list debt securities.

“Unlisted companies issuing listed debentures must be regulated, so there is control over who is allowed to list debentures and at what amount. Investors have had their fingers burned in similar situations before, so proper regulation will be important to establish confidence,” he noted.

Policy consistency with regards to tax concessions was highlighted as a further area of concern. “Removal of the withholding tax and other tax concessions will help grow the corporate debt market. However, there are concerns about their impact on government revenue.”

“Now that they’ve implemented it, there has to be some consistency to allow the market to adjust but with current revenue levels, I have concerns about the sustainability of tax concessions,” Boyagoda said. Meanwhile, Heraymila Securities Limited CEO Ravi Abeysuriya called for streamlining of listing procedure and a greater focus on educating investors about the corporate debt market.

“There is a lot of change that will be required if the corporate debt market is to grow. Even now people are only buying debentures and then holding on to them so they’re not really being traded.” “More will have to be done to educate investors the approvals process, which is geared only towards equity, needs to be simplified,” Abeysuriya stated.
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