S r i L a n k a E q u i t i e s
Analysts – Ranmini Vithanagamaand Waruna SingappuliDate – 06.05.2011
Would short term focusspoil long term growth?
The growth thus far was strong and comprehensive
Sri Lanka’s economy grew at 8% in 2010, with impressivegrowth rates posted for all three sectors. Agriculture sectorbenefitted from increased land availability and highercommodity prices, while industry sector was boosted byconstruction and manufacturing activities. The tourismsector and transportation sector supported the service sectorperformance.
…But some concerns do remain
Inflation rose to 9.8% in April 2011, amidst supplyshortages in food and vegetables, and a rise in crude oilprices, and lately, excess liquidity in the market.The trade deficit in 2010 deteriorated 67% compared to thatin 2009, amidst a strong pick up in imports.
For a growth beyond medium term…
We believe that Sri Lanka could be more efficient in theimplementation of large scale projects, and pursue avenuesof diversifying export earnings and substitute selectedimports where feasible for a sustainable growth beyond 3-4years.
Equity market – we remain positive …
We remain bullish on the equity market, although webelieve that investment decisions based on logic rather thanspeculation is vital to sustain the positive momentum. Westill expect the ASPI to reach 12,000 levels by 2013, but donot believe the exceptional gains witnessed in 2009 and2010 are feasible in the immediate future.
However, for long term growth, the market needs to expandfurther, while improving liquidity and introducing effectivemeasures to curb manipulation.