The Colombo Stock Market

An Investment Opportunity Outlook For 2009 & Beyond

Coverage
WhytheCSE?Whynow? Macroupdate Sectors&riskexposure Investmentstrategy Tools,resources&analysis

Why the CSE? Why Now?

Empirically equities outperform other means of investment Gains made from the CSE are TAX FREE Prices have significantly reduced from the 2007 highs

I cant predict the short term movement of the Stock Market. I havent the faintest idea as to whether stocks will be higher or lower a month or a year from now. What is likely however is that the market will move higher perhaps substantially so, well before the sentiment or the economy, turns up. So if you wait for the Robins, spring will be over

Warren Buffet

Investment Horizon
Investors Traders Speculators
We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'

Timing of Investments Entry & Exit

120 100 80 60 40 20 0
Informed Informed Rectionary Rectionary Bandwagon Bandwagon

Market

We are over here

ParticipantEntry&ExitBehaviour

1,000

1,500

2,000

2,500

3,000

3,500

500

1991 Cease Fire 1994 Cease Fire 2002 Cease Fire

ASI&CFA's

Dj Vu CSE & Cessation of Hostilities

2Jan85 2Jan86 2Jan87 2Jan88 2Jan89 2Jan90 2Jan91 2Jan92 2Jan93 2Jan94 2Jan95 2Jan96 2Jan97 2Jan98 2Jan99 2Jan00 2Jan01 2Jan02 2Jan03 2Jan04 2Jan05 2Jan06 2Jan07 2Jan08

2009 Endin Sight?

ASI Return Vs. T Bill Return

6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 ASI TBR

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Where does the CSE stand?

100,000

120,000

20,000

40,000

60,000

80,000

Telecommunications Banks&Finance Diversifieds F&BandTobacco Hotels Manufacturing HealthCare OilPalms Motors Land&Property Plantations Power&Energy Chemicals&Pharma. Trading InvestmentTrusts Construction&Eng. Footwear&Textiles Stores&Supplies Services IT

CSE Sectors by Market Capitalization

SectorsbyMCAP(InMillions)

Significant Macro Events

Civil strife expected to be resolved Global recession Foreign exchange situation High interest rates Inflationary economy Commodity price slump Construction stagnant Tourist arrivals declining Telecoms - Airtel Corporate earnings outlook

Scenario Analysis
Scenario Endtocivilwar Effect Sharpincreaseinforeignandinvestmentinflows Markettradingsentimentturnssignificantlypositive.(Paralell2004) Interestpicksuponallfronts(HNI,Institutionsandretailinvestors) Globalrecession Forexcrisis Highinterestrates Commoditiesslump Constructionstagnant Touristarrivalsdeclining Airtel Earningsoutlook Exportsdecline.Exports/Remittances/Other(Commercial)external flowsdecline.Commoditypricesdecline USDdepreciationmakesimportsexpensive Highcostoffunds Tea,rubber,oilpalm,oilpricesdeclinedramatically Declineintheconstructionboom.Apartmentsalesandhousing slowingdown 32%reductioninJanuaryarrivals.(Globalrecession.Forexcrisis.) 5thPlayer.Inasaturatedmarket? Shorttomediumtermoutlooknegative.Volumes,pricesand demandworriestogetherwithfinancing,forexissuesindicate earningsmaysuffer.Longtermoutlookverybrightonpeaceprospects Hotels Telcos Acrosstheboard Hotels,Plantations&other direct/indirectexporters Consumerdiscretionarysegments Autos,Electronics Acrosstheboard Plantations(P&EandF&B) BFI,L&P,C&E Impact Acrosstheboard

Strategy What Should an Investor Look For?

Company wise Low gearing Sound prospects Macro changes Underlying economics Assets Trading wise Liquidity Holding power Profit targets Diversify Due Diligence Price history (HiLo)

Tools & Resources

Fundamental Analysis (EPS,PER,DER,DPS,ROE,ROA,Asset:TO) Technical Analysis (Prices & Chart Patterns)

Fundamental Analysis
Ratios:
Revenuegrowth Earningsgrowth GrossProfitMargin OperatingMargin PreTaxMargin NetProfitMargin Fixedassetturnover ReturnonAssets ReturnonEquity NetDebttoEquity EarningsPerShare* BookValuePerShare*

2004A
71.0% 14.9% 4.4% 4.2% 4.0%

2005A
23.8% 61.5% 11.8% 1.9% 1.0% 1.2%

2006A
22.5% 732.0% 20.9% 12.1% 11.4% 8.3%

2007A
18.4% 76.4% 24.8% 15.0% 14.9% 12.4%

2008F
21.7% 29.0% 26.0% 16.5% 15.5% 13.0%

2009F
22.4% 28.0% 27.0% 17.5% 16.2% 13.8%

4.4 4.5 4.7 4.8 4.9 5.5 4.4% 1.4% 10.4% 13.8% 14.5% 14.1% 10.7% 4.2% 26.6% 33.8% 32.2% 30.9% 5.27% 68.97% 20.77% 15.18% 6.90% 6.44% 2.85 26.59 1.10 25.85 9.12 34.27 16.09 47.65 20.75 64.40 26.56 85.96

Du Pont
ROE = NP/Equity Asset: Turnover*NPM*Leverage = ROE
Turnover NetProfit Assets * * Assets Turnover Equity
=

NetProfit Equity

If a business does well.. The stock eventually follows

Technical Analysis - MACD

Tech. - Fibonacci Retracement

Summary
End to strife brings significant up side potential Broad macro indicators bear watching Diligence, research, clear & planned investment strategies Diversify

Uncertainty?
I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over. If past history was all there was to the game, the richest people would be librarians. In the business world, the rearview mirror is always clearer than the windshield. Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Risk comes from not knowing what you're doing. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

Rule #1 Rule #2

NEVER LOSE MONEY NEVER FORGET RULE #1

Happy Investing!