Sri lanka outlook for equities 2013-14

150, St. Joseph’s Street, Colombo 01400, Sri Lanka.
Tel: +94 112490900, Email: info.securities@jb.lk, www.jbs.lk
31st July 2013
Sri Lanka: Outlook for Equities - 2013/14
Searching for value…
Gold Winner - Equity Research Report 2013

JB Securities Research July 2013
Market SnapshotCountry Snapshot
Name Democratic Socialist Republic of Sri Lanka
Capital Sri Jayewardenepura
Commercial Capital Colombo
Time zone Standard time zone UTC +5.30
Nationality Sri Lankan
Population 20.3 Million
Total Area 65,610 Sq.km
Density 324/Sq.km
Currency Sri Lankan Rupee (LKR)
Exchange rates* LKR 131.62/US$| LKR 174.68/€ | LKR 201.96/£
Economic size (2012 )
GDP (Market) USD 59.4 Billion
GDP (PPP) Int’l D 126.9 Billion
GDP per capita (Market) USD 2,923
GDP per capita (PPP ) Int’l D 6,136
Sovereign rating Moody’s: (B1) ‘Positive’ S&P: (B+) ‘Stable’ Fitch: (BB-) ‘Stable’
Official languages Sinhala, Tamil
Business language English
Literacy rate 91.9%
6°54′N
79°54′E
*As at 1300h - 30/07/2013,
Sources: Bloomberg L.P., Annual Report 2012 – CBSL 2013, IMF
Sri Jayawaredenepura
Colombo

Financials, 29.3%
Consumer Staples,
28.1%
Industrials, 20.0%
Consumer
Discretionary, 9.5%
Telecom,
6.2%
Energy, 2.6%
Healthcare, 1.9%
Materials,
1.8%
Utilities,
0.5% IT, 0.0%
Colombo Stock Exchange Market Decomposition - GICS
Retailing,
2.2%Textiles,
Apparel &
Luxury Goods,
0.6%
Auto
Components,
0.2%
Household Durables,
0.1%
Consumer Discretionary
Hotels, Rest.
& Leisure,
6.5%
Construction
&
Engineering,
1.0%
Machinery,
1.0%
Building
Products,
0.9%
Other,
0.9%
Industrials
Industrial
Conglomerates,
16.2%
Food,
12.3%
Tobacco,
8.0%
Beverages,
4.9%
Food & Drug
Retailing,
2.7%
H.H & Personal
Products, 0.1%
Consumer
Staples
Insurance,
2.5%
Real Estate,
2.1%
Financials
Div.
Financials
, 11.3%
Banks,
13.4%
Source: JBS Research, CSE, GICS
Market Cap – LKR 2.3 Trillion, USD 17.8 Billion (26 July 2013)

Recap of
the last 12
months…
Potential
risks exist…
Investment
case
remains…

80
100
120
140
160
180
Start Value = 105
End Value = 125
Low Point = 90
News flow was mixed…
Amended
Divineguma bill
passed. The bill
would create a
new department
by amalgamating 3
authorities which
will come under
the purview of
Economic
Development
Minister, Basil
Rajapakse.
Riot breaks
out in main
prison
facility in
Welikada,
a ward of
Colombo
City. The
riot left 27
people
dead and
40 injured.
2012
Q1
INTERNATIONALDOMESTIC
Sources: Newspaper articles, Central Bank of Sri Lanka, LMD, The Nielsen Company, JBS Research
High Point = 158
Government denies UN
report that it intimidated UN
staff investigating abuses at
the end of the war. The
report also said UN human
rights agencies had failed to
fulfill their responsibility to
protect civilians in the final
months of the conflict.
178 Sri Lankan
visitors to a
Christian shrine in
Velankanni TN
were stopped by
protestors, and in
another instance
five buses of
pilgrims stoned.
Canadian PM
to boycott the
CHOGM to be
held in SL end
of this year,
unless the HR &
accountability
issues are
resolved.
Protests intensify
in Tamil Nadu
ahead of UN vote
on SL HR record.
SL government
warns its
nationals against
traveling to TN
India.
UN Human Rights
Council passes highly-
critical resolution urging
Sri Lanka to conduct
"independent and
credible investigation"
into alleged war crimes
during Tamil Tiger
insurgency.
Parliament
passes
impeachment
motion
against Chief
Justice
Shirani
Bandaranaya
ke.
Opposition
says move
politically
motivated.
Two Sri Lankan
Buddhist monks
attacked in
Tamil Nadu by
small mobs.
Australia rejects
calls to boycott
CHOGM in Sri
Lanka over
alleged human
rights violations.
Parliament
passes
legislation
that increase
police
power.
Under the
new bill
police may
detain and
question a
person for up
to 48 hours.
President
reshuffles
cabinet
portfolios.
Increases
the number
of ministers
to 102,
including
67 cabinet
ministers,
out of 225
MP’s.
Intense diplomatic pressure exercised by Western nations & India over SL Government HR issues and Judicial Independency, throughout the year
Duminda Silva
returns from
Singapore after
being treated for
injuries sustained
in a gun battle
which lead to 3
deaths. He is
incarcerated on
arrival but allowed
to take medical
treatment in a
Private hospital.
Mattala
Rajapakse
int'l
Airport
ceremonia
lly opened
by the
President.
Racially
incited mob
attacks
“Fashion
bug”
clothing
retailer
owned by
Muslims in a
suburb of
Colombo.
Mass
pubic
protest
against
the 50% -
127% rise
in
electricity
prices.
Azad Sally , ex
deputy mayor
arrested &
subsequently
released for
alleging that the
gov’t was
behind the
racially charged
attacks against
Muslims.
The Queen to
miss CHOGM to
be held later
this year in SL,
Prince Charles
to take her
place.
4 yr low = 87
4 yr high = 173
Communal unrest increases
Political Human R.Infrastructure UnrestLEGEND
Q4 Q2Q3Q2
2013
SL extends
power cuts (3
½ h per day)
due to
downtime at
the Chinese
built power
plant &
drought
affecting
hydro power
production.
Government sweeps through major reforms to strengthen its hand
LMD-NielsenBusinessConfidenceIndex

8.25% 8.00%
6.44%
4.77%
6.31% 6.41% 5.95%
Q1 Q2 Q3 Q4 Q1
2011 Annual 2012 Quarterly 2012 Annual 2013
16.77%
13.15%
15.10%
13.36%
20.67%
15.87%
15.16%
Economic growth slowed...
Nominal
Growth
Real
Growth
Source: Census and Statistics Sri Lanka, JBS Research Analysis

Investments leading growth…
Source: CBSL annual report 2012, JBS Research Analysis
24.90% 21.36% 21.69%
69.69%
64.33%
65.77%
16.18%
17.65%
15.58%
21.07%
17.90%
21.43%
6.48%
6.64%
6.35%
-38.32%
-27.87% -30.82%
2010 2011 2012
Imports of goods and services
Exports of goods and services
Private consumption
Government consumption
Investment-Private
Nominal (Real) GDP growth
Investment-Public
15.89% (6.41%)16.78% (8.25%)
100%=GDP in LKR Bn. (Nominal)
12.37%42.51%
24.16% 14.61%
15.47%
23.98%
14.66%
28.54%
5,062
6,542
7,582
GDP Decomposition and sector growth

Contribution to Growth %, YE2009-12 (3yrs)
External flows fuelling growth…
Source: Central Bank of Sri Lanka, JBS Research Analysis
2,927
3,608
4,583
5,339
3,330
4,116
5,145
5,985
4,732
5,715
7,533
7,809
2009 2010 2011 2012
11.27% 11.53% 12.73% 13.14% % of GDP
41.19%
100.00%
45.90%
12.90%
Leaders Steady Laggards Total,2009/12
12.46%
7.26%
3.57%
Note: Includes net remittances, grants, net borrowings (govt. + commercial
bank net ), capital transfers and net income outflows
Net External Flows (USD/Mn)
CAGR%
7.55%
100% = LKR.598Bn
Net Private
Remittances
Gross
Remittances
Inflows
Leaders - Hotels, mining & quarrying, construction, fishing, post & telecommunication, cargo-ports & civil aviation, passenger goods & railway transport.
Steady - Import trade, banking, insurance & real estate, domestic trade, electricity, gas & water, manufacturing.
Laggards - Private services, export trade, agriculture, livestock & forestry, Ownership of dwellings, government services.

6,619,958
6,751,793
6,839,087
7,261,077
2009 2010 2011 2012
1.99%
1.29%
6.17%
369,974
391,828
418,728 419,673
2009 2010 2011 2012
5.91%
6.78%
0.23%
Growth is generating new jobs…
Employed Population
Labour Productivity (LKR)
GDP/Employed Population
GDP Growth Decomposition
5.91%
6.87%
0.23%
1.99%
1.29%
6.17%
2010 2011 2012
8.02% 8.25%
6.41%Employment
growth
Productivity
growth
All in LKR constant 2002
XX% Growth
Note: Growth in GDP = [(1+Growth in Productivity)*(1+Growth in Employment)]-1

1.13
1.14
1.13
1.10
2009 2010 2011 2012
0.89%
-3.04%
-0.98%
Capital Productivity
GDP/Capital stock
327,034
343,298
370,497
382,958
2009 2010 2011 2012
4.97%
7.92%
3.36%
Capital Intensity (LKR)
Capital stock/Employed population
Capital intensity driving labour productivity…
XX% Growth
All in LKR constant 2002
Note: Growth in Productivity = [(1+Growth in Capital Intensity)*(1+Growth in Capital Productivity)]-1
Capital stock is calculated using perpetual inventory method.
369,974
391,828
418,728 419,673
2009 2010 2011 2012
5.91%
6.78%
0.23%
Labour Productivity (LKR)
GDP/Employed Population

Erratic rainfall affected agricultural output…
2,125
2,384
2,630
1,996
2,717
1,750 1,268
1,671
1,898
1,129
2008 2009 2010 2011 2012
Paddy Production
-
500
1,000
1,500
2,000
2,500
3,000
3,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
mm
Monthly Rainfall
MT ‘000
Yala
Maha
* Average rainfall in 6 paddy growing districts (60% of output) -
Ampara, Anuradhapura, Batticaloa, Hambantota
Kurunegala and Polonnaruwa
2011
2012
Avg. *
Source: Department of Meteorology, Department of Census and Statistics

Fewer rains… less hydro in generation mix… more expensive thermal
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Hydro contribution
Reservoir storage
45%
20%
61%
53%
77%
38%
2% 3% 1%
Jun-11 Jun-12 Dec-12
Hydro
Thermal
Other
+ 75MW + 75MW
Upper Kotmale
Source: PUCSL, Ceylon Electricity Board, Central Bank of Sri Lanka
Reservoir Storage & Hydro Contribution Generation Mix

Foreign arrivals continued to grow…
2010 2011 2012
1,005.6
2010 2011 20122010 2011 2012
Foreign Arrivals 1 (‘000s)
Source SLTDA
Foreign Guest Nights (‘000s)
1 Foreign arrivals – Total of tourist arrivals and VFR (Visiting Friends and Relations)
5,375.7 7,410.07,258.9
Tourism Earnings (US$ Mn)
575.9 830.3 1,038.7
619.1
785.4
888.1
35.4
70.5
117.5
VFRTourist arrivals
10 10 10 Avg. length of stay
855.9
654.5
30.8%
17.5%
35.0%
2.1%
44.2%
25.1%

High room tariffs + Inadequate promotion… less demand for the formal sector
2010 2011 2012
2010 2011 2012
Formal sector 1 Room Inventory
70.2%
Foreign Guest Nights in Graded establishments
1 Graded accommodation establishments Source SLTDA
occupiedavailable
77.1% 71.1%
252
14,653
269
15,510
4,126,544
5,011,480 5,038,000
253
14,714
Establishments
Room inventory

Cheaper tariffs… more demand for the informal sector
Supplementary Establishments Room
Inventory
1 Informal sector - supplementary accommodation establishments and other unregistered establishments Source SLTDA
2,418,216
3,548,270
5,018,050
2010 2011 2012
Foreign Guest Nights in Informal Sector 1
2010 2011 2012
654
6,141
625
6,632
530
5,895
Establishments
Room inventory
1,303 2
2 Total accommodation listings on www.agoda.com

2,474
3,030
3,358
901
1,117
1,346
449
658
862
175
195
222
2010 2011 2012
5,144
5,986
56.1% 16.5%
22.5% 22.2%
14.4% 38.6%
3.7% 12.6%
2.2% 26.9%
1.1% 37.3%
2012 2012
Middle East
Europe
Americas
Other
Australia and NZ
Asia
Share % CAGR
All amounts in USD millions
4,116
Source : Central Bank of Sri Lanka
Remittance growth continued to be strong…

14.6% 14.3%
13.0%
9.0%
12.5%
14.0%
17.9%
21.0%
26.4%
2010
2011
2012
India
Bangladesh
Phillippines
Thailand
Malaysia
Vietnam
725
813 845
93
122
143
17
15
16
2010 2011 2012
Tax Non tax Grants
Government revenue growth slowed… lower than peers
13.9%
5.7%
834
950
1,004
*Excludes grants
**Peer data as of 2011
Government Revenue Government Revenue* to GDP
LKR Bn.
Source: Central Bank of Sri Lanka, Asian Development Bank
Sri Lanka

22.8%
21.4%
19.7%
14.9% 15.2% 15.8%
19.8%
25.9%
28.0%
2010
2011
2012
India
Bangladesh
Phillippines
Thailand
Malaysia
Vietnam
1,280
1,400 1,493
937
1,007
1,094
41
30
25
2010 2011 2012
Lending minus Repayments
Recurrent
Expenditure and Lending minus Repayments
Government expenditure growth slowed… higher than peers
9.4%
6.6%1,280
1,400
1,493
Government Expenditure to GDPGovernment Expenditure
LKR Bn.
*Peer data as of 2011
Sri Lanka

-8.0%
-6.9%
-6.4%
-5.9%
-4.8%
-2.9%
-2.5%
-2.0%
-1.8%
2010
2011
2012
India
Malaysia
Bangladesh
Vietnam
Phillipines
Thailand
(446)
(450)
(489)
2010 2011 2012
0.9%
8.6%
Deficit increased… higher GDP growth reducing ratio… high relative to peers
Fiscal Balance to GDPFiscal Balance
LKR Bn.
Sri Lanka

Primary balance is a deficit…
* Primary balance is government revenue minus all expenses
excluding interest. Assuming nominal interest rates equal
nominal GDP growth a primary surplus reduces debt to
GDP.
Deficit as a % of GDP
Interest Cost as a % of GDP
Primary* Deficit as a % of GDP
Source : JBS Research Analysis, Central Bank of Sri Lanka
8.0%
6.9%
6.4%
2010 2011 2012
6.3%
5.5% 5.4%
2010 2011 2012
1.7%
1.4%
1.1%
2010 2011 2012

244 219
286
(2)
192
132204
39
71
2010 2011 2012
Financing of Budget Deficit
Foreign borrowing
Domestic bank
Domestic non bank
LKR Bn.
446 450
489
Foreign
borrowing
Domestic
bank
Domestic non
bank
Financing of Budget Deficit
(% mix of funding)
Source: Central Bank of Sri Lanka
Foreign sources funded the fiscal deficit easing pressure on domestic sources
62.6%
57.0%
49.5%
30.2%
32.8%
34.1%
7.3% 10.1%
16.4%
2010 2011 2012

Concessional
Loans
Non-Concessional
Loans
Commercial Loans
* Sovereign bonds and foreign holding of treasuries are classified as commercial loans
Foreign Borrowings of the Government
(%GDP)
Foreign Borrowings of the Government
(% composition)
Shift in reliance to non-concessional and commercial loans…
22.6%
20.3%
18.1%
10.9%
11.7%
12.4%
2.6%
3.6% 6.0%
2010 2011 2012
36.1% 35.6% 36.5%
Concessional
Loans
Non-Concessional
Loans
Commercial
Loans
62.6%
57.0%
49.5%
30.2%
32.8%
34.1%
7.3% 10.1%
16.4%
2010 2011 2012

Real Interest Rates
Source : Central Bank of Sri Lanka, JBS Research Analysis* CCPI 2002 – Core Inflation 12 month MA, 1 year treasury bill yield
Inflation trended up … nominal rates adjusted up … real rates +
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
0%
2%
4%
6%
8%
10%
12%
14%
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
T-bill rate
Inflation*

Domestic credit growth retarded… credit to gov’t increased…
All amounts in LKR Bn.
In 2013, credit to
govt. was 3.8X
private sector credit
36.7
9.1
7.6
-150
-100
-50
0
50
100
150
200
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
Credit, Monthly Change
Private
Corps.
Govt.
1,217
18.3%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
-
200
400
600
800
1,000
1,200
1,400
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
Net Credit to Govt.
Net Credit to Government
Annual Change (%)
345
34.0%
0%
50%
100%
150%
200%
250%
-
50
100
150
200
250
300
350
400
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
Credit to Corporations
Credit to SOEs
Annual Change (%)
2,403
10.2%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
500
1,000
1,500
2,000
2,500
3,000
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
Credit to Private Sector
Credit to the Private Sector
Annual Change (%)

Credit growth funded via external borrowings…
Net Foreign Assets of the
Banking System
420
(143)
(372)
(95)
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Foreign currency Banking Units
Domestic Banking Units
Monetary Authorities
Net Foreign Assets of the Banking System
Consolidated Broad Money
(M2b)
3,133
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Net Domestic Assets of the
Banking System
2,403
1,217
345
(737)
3,228
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Other Items
Credit to Corporations
Net Credit to Government
Credit to the Private Sector
Net Domestic Assets of the Banking System
Foreign borrowings
funding domestic credit

457
406
222
12
-4
6
116
173
121
30
119
6
2011 2012 Apr-13
LKR Deposits
LKR Borrowings
FCY Borrowings
FCY Deposits
515
434
60
-36
2
111
108
42
3 142
221
8
-4
4
2011 2012 Apr-13
LKR Loans
Debt securities and others
FCY Loans
Government Securities
Shares and Unit trusts
Change in Key Liabilities Change in Key Assets
Commercial banks leaned towards foreign borrowings...

5%
7%
9%
11%
13%
15%
17%
30-Dec-11
09-Jan-12
18-Jan-12
26-Jan-12
03-Feb-12
15-Feb-12
24-Feb-12
05-Mar-12
15-Mar-12
23-Mar-12
02-Apr-12
11-Apr-12
23-Apr-12
02-May-12
11-May-12
21-May-12
29-May-12
07-Jun-12
15-Jun-12
25-Jun-12
04-Jul-12
12-Jul-12
20-Jul-12
30-Jul-12
08-Aug-12
16-Aug-12
24-Aug-12
04-Sep-12
12-Sep-12
20-Sep-12
01-Oct-12
09-Oct-12
17-Oct-12
25-Oct-12
05-Nov-12
14-Nov-12
22-Nov-12
03-Dec-12
11-Dec-12
19-Dec-12
31-Dec-12
08-Jan-13
17-Jan-13
28-Jan-13
07-Feb-13
15-Feb-13
26-Feb-13
07-Mar-13
15-Mar-13
25-Mar-13
04-Apr-13
12-Apr-13
23-Apr-13
03-May-13
13-May-13
21-May-13
30-May-13
07-Jun-13
17-Jun-13
25-Jun-13
03-Jul-13
11-Jul-13
19-Jul-13
Repo Reverse Repo AWPLR AWDR Call Money Rate
SLIBOR(1 month) T bill(3month) gross T bill(3month) AWFDR AWLR
Policy Rate Pass-through to Market Interest Rates
Monetary policy was loosened…
7.00%
9.00%
10.07%
11.79%
10.56%
8.72%
9.59%
8.63%
13.61%
16.25%
* Latest figures as at 24th July 2013

10%
11%
12%
13%
14%
15%
16%
17%
30-Dec-11
09-Jan-12
18-Jan-12
26-Jan-12
03-Feb-12
15-Feb-12
24-Feb-12
05-Mar-12
15-Mar-12
23-Mar-12
02-Apr-12
11-Apr-12
23-Apr-12
02-May-12
11-May-12
21-May-12
29-May-12
07-Jun-12
15-Jun-12
25-Jun-12
04-Jul-12
12-Jul-12
20-Jul-12
30-Jul-12
08-Aug-12
16-Aug-12
24-Aug-12
04-Sep-12
12-Sep-12
20-Sep-12
01-Oct-12
09-Oct-12
17-Oct-12
25-Oct-12
05-Nov-12
14-Nov-12
22-Nov-12
03-Dec-12
11-Dec-12
19-Dec-12
31-Dec-12
08-Jan-13
17-Jan-13
28-Jan-13
07-Feb-13
15-Feb-13
26-Feb-13
07-Mar-13
15-Mar-13
25-Mar-13
04-Apr-13
12-Apr-13
23-Apr-13
03-May-13
13-May-13
21-May-13
30-May-13
07-Jun-13
17-Jun-13
25-Jun-13
03-Jul-13
11-Jul-13
19-Jul-13
AWPLR
AWLR
3.54%
1.58%
2.67%
Credit Quality Spread
Transmission mechanism delayed pass through…

SRR* cut created greater liquidity...
8.42%
Money Market Net Liquidity & Overnight Interest Rate
*Statutory Reserve Ratio
1.86
0%
2%
4%
6%
8%
10%
12%
-20
-10
0
10
20
30
40
50
60
70
02-Jan-12
10-Jan-12
19-Jan-12
27-Jan-12
06-Feb-12
16-Feb-12
27-Feb-12
06-Mar-12
16-Mar-12
26-Mar-12
03-Apr-12
16-Apr-12
24-Apr-12
03-May-12
14-May-12
22-May-12
30-May-12
08-Jun-12
18-Jun-12
26-Jun-12
05-Jul-12
13-Jul-12
23-Jul-12
31-Jul-12
09-Aug-12
17-Aug-12
27-Aug-12
05-Sep-12
13-Sep-12
21-Sep-12
02-Oct-12
10-Oct-12
18-Oct-12
26-Oct-12
06-Nov-12
15-Nov-12
23-Nov-12
04-Dec-12
12-Dec-12
20-Dec-12
01-Jan-13
09-Jan-13
18-Jan-13
29-Jan-13
08-Feb-13
18-Feb-13
27-Feb-13
08-Mar-13
18-Mar-13
27-Mar-13
05-Apr-13
16-Apr-13
24-Apr-13
06-May-13
14-May-13
22-May-13
31-May-13
10-Jun-13
18-Jun-13
26-Jun-13
04-Jul-13
12-Jul-13
23-Jul-13
Net Liquidity Repo rate
CBSL cuts SRR from 8% to 6%

Change in Imports Change in Exports
9,710
9,326
244
117
161 10 73
54
263
386
405
488
331
200
117
79
64
25 28 29
2011 Petroleum Machinery
and
equipment
Building
material
Other
consumer
goods
Transport
equipment
Textiles and
textile
articles
Food and
beverages
Vehicles Other
Intermediate
Diamond
and Precious
Metals
Other
Industrial
Textiles and
garments
Other Agri Tea Food,
beverages
and tobacco
Rubber
products
Mineral
products
Undisclosed 2012
% Increase 5.1% 10.0% 15.0% -6.8% -2.3% -16.8% -19.0% -43.8% -9.9% -45.4% -12.9% -4.8% -11.3% -5.3% -18.4% -2.9% 86.3% - -
Trade
Deficit
Trade
Deficit
Lower imports and exports… trade deficit reduced marginally…
USD millions
As a % of GDP
16.4%
15.8%
Gold imports drop
from 604mn in 2011
to 170mn in 2012
Vehicle imports drop from
881mn. in 2011 to 495mn.
in 2012 following duty hike

Service account is a surplus… income account is a deficit
1,634
1,251
1,172
1,039
710
436
680
656
Inflows Outflows Inflows Outflows Inflows Inflows Outflows
Transportation Travel BPO, ITES Other Surplus
991
1,149
292
445
15 34
14
Outflows Inflows Outflows Inflows Outflows Inflows
Interest and Other
Charges
Direct Investment Compensation of
Employees
Deficit
Income AccountService Account
USD millions
23.0%17.4%
41.7%
34.1% 23.5%
78.9% 75.0% 77.4%
25.2%
22.8% 50.0%15.6%
-34.8%39.8%
13.7%
Tourism
flows
External
debt service
As a % of GDP
2.10%
1.93%
1.7%
Percentage increase over 2011

19,183
9,409 9,307
3,915
9,774
3,788
2,538 321
1,469
5,985
646
53
Imports Exports Trade deficit Receipts Payments Receipts Payments Private
receipts
Private
payments
Offical
transfers
(net)
32.3% 16.5% 15.8% 6.4% 4.3% 0.5% 2.5% 15.7% 10.1% 1.1% 0.1% 6.6%
Merchandise trade Services Income Goods,
Services and
Income (net)
Current transfers Current
account
deficit
Increasing remittances reduced the current account balance…
-7.4%-5.4%
27.9%
16.3%22.8%-3.1%
14.9%
-11.7% -15.2%
-31.3%
31.9% 0.5%
USD millions
Remittance
flows
Percentage increase over 2011
Percentage
of GDP

7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
50
60
70
80
90
100
110
5-Jan-11
5-Mar-11
5-May-11
5-Jul-11
5-Sep-11
5-Nov-11
5-Jan-12
5-Mar-12
5-May-12
5-Jul-12
5-Sep-12
5-Nov-12
5-Jan-13
5-Mar-13
5-May-13
Foreign holdings
As a % of total T-bills
Foreign Limit
Switch from bills
to bonds
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
150
200
250
300
350
400
450
5-Jan-11
5-Mar-11
5-May-11
5-Jul-11
5-Sep-11
5-Nov-11
5-Jan-12
5-Mar-12
5-May-12
5-Jul-12
5-Sep-12
5-Nov-12
5-Jan-13
5-Mar-13
5-May-13
Foreign holdings
As a % of total T-bills
Foreign Limit
Positive investor
sentiment flows on to
treasuries following the
sovereign bond being
oversubscribed 10.5X
…rule relaxation…
Jan ’13: Foreigners allowed to
subscribe upfront the entire allocation
for the year – this was previously
capped at 12.5% of outstanding stock
Foreign Holding of Treasury BondsForeign Holding of Treasury Bills
Foreign limit of 12.5% not imposed… yield seeking investors flowed in
(4)
* Latest figures as at 26th June 2013
101

75
80
85
90
95
100
105
95
100
105
110
115
120
125
130
135
140
Jan11
Feb11
Mar11
Apr11
May11
Jun11
Jul11
Aug11
Sep11
Oct11
Nov11
Dec11
Jan12
Feb12
Mar12
Apr12
May12
Jun12
Jul12
Aug12
Sep12
Oct12
Nov12
Dec12
Jan13
Feb13
Mar13
Apr13
May13
Jun13
Jul13
REER
NEER
LKR
Appreciation of the USD Against Regional Currencies
LKR range bound… REER appreciating due to higher relative inflation
Source: forexpros.com, Central Bank of Sri Lanka, JBS Research
REER > NEER due
to higher domestic
inflation
Readjustment
after
depreciation
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan11
Mar11
May11
Jul11
Sep11
Nov11
Jan12
Mar12
May12
Jul12
Sep12
Nov12
Jan13
Mar13
May13
Jul13
Sri Lankan rupee (LKR)
Bangladeshi taka (BDT)
Vietnamese dong (VND)
Indian rupee (INR)
Chinese yuan (CNY)
* Latest figures as at 23rd July 2013

Frontier markets equity inflows increased including into Sri Lanka
67.62
55.03
40.56
75.41
July - Sep Oct - Dec Jan - Mar April - June
2012 2013
Net Inflows of Foreign Companies
(July 2012 – June 2013)
Major FII Inflows
( July 2012 – March 2013 )
Source : JBS Research estimates base on top 20 shareholders list, CSE
Aberdeen Group
12.84
9.92
5.06
JKH
SPEN
LLUB
COMB
OTHER
81.29
49.21
JKH
SAMP
LOLC
16.33
5.87
4.42
BBH –Matthews
Asia Fund
26.63
JPLMU Franklin Templeton
Investment Fund
31.90
COMB
Wasatch fund
7.96
All amounts in USD Millions

Large liquid caps attracted most of the flows…
Source : CSE , JBS research estimates
Foreign Net Equity Portfolio Investment
1 July 2012 – 30 June 2013 (Total for the period = 240.98 )
185.57
124.15
18.36
16.90
11.73
8.09
8.01
4.00 1.06 0.16 -5.35
- 1.55
JKH DIST SAMP CARG LION NEST CTC DFCC COMB HNB SPEN
51.52% 7.62% 7.01% 4.87% 3.36% 3.32% 1.66% 0.44% 0.07% - 2.22% - 0.64%
Net inflow into the
stock in comparison to
the market
Foreign net equity
portfolio investment
TOTAL
77.00%

5.0%
2.4%
2.7%
2.2%
2.0%
1.7%
1.3%
1.2%
1.0%
0.9% -1.0%
2.8%
22.1%
JKH CTC COMB NDB SAMP LLUB DIST DFCC HNB NEST BUKI Other Total
Attribution of S&PSL20 Growth
June 2012 – June 2013
Which in turn drove up the index…
Source: CSE, S&P, JBS Research

Indices recorded healthy gains…
Source: CSE, S&P, JBS Research
2,500
3,100
3,700
4,500
5,500
6,500
Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
Movement in ASI & S&PSL20
Series1 Series2ASI S&PSL20
ASI S&PSL20
22.3%*
30.5%*
*Returns are shown for ASI only.

-10%
0%
10%
20%
30%
40%
50%
60%
Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13
Beverage, Food and Tobacco sector outperformed…
Source: CSE, JBS Research
*See glossary for acronyms
BFT*
BFI
ASI
S&P
DIV
H&T

Foreign holding as a %
of public holding*
18.32
22.74
30.01
10.46
8.20
7.99
10.46
15.65
15.37
64.37
30.52
3.08
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
JKH CTC NEST COMB DIAL HNB DIST SPEN LLUB CARG LION NDB
Large cap stocks are well owned by FIIs….
Source : CSE , Bloomberg market data , JBS research estimates
64.23 %
77.01 %
43.87 %
40.10 %
51.66 %
29.12 %
24.49 %
67.82 %
61.78 %
39.45 %
59.21 %
41.22 %
* Public Holding : The total number of shares publicly owned and available for trading
88.36% 15.87% 9.18% 85.00% 14.73% 69.81% 29.53% 40.07% 49.00% 18.35% 15.15% 95.54%
JKH CTC NEST COMB DIAL HNB DIST SPEN LLUB CARG LION NDB
7 93 421 10 11 12 13 17 18
P/E Ratio
Public holding %
Rank based on market
capitalization

11.0%
Domestic institutions recorded outflows …
-13.73
47.29
15.90
2012 (DEC)2011 (Dec)2010 (Dec)
5.4%
0.81
2.35
-0.60
201220112010
Employee Trust Fund
-2.35
10.27
-10.62
201220112010
Insurance Companies
-0.03
-1.20
-0.09
201220112010
Unit Trusts
Equity net cash flows (LKR Bn) Equity allocation % of total portfolio
Source : SEC Sri Lanka , JBS research estimates
4.0%
8.0%
16.0%
15.0%
53.0%
42.0%
29.0%
4.0%
5.0%
4.7%
Assumption: Annual return of institutional funds equal to ASI index return
2010 2011 2010 2011 20122012
Employee Provident Fund

168.43
91.31
115.45
154.37
203.67
97.85
133.79
211.80
July - Sep Oct - Dec Jan - Mar April - June
2012 2013
Retail investors were net sellers…
Purchases and Sales of Local Individuals
(July 2012 – June 2013)
Local individuals purchases Local individuals sales
Source : CSE

Credit extended by margin providers remained stable…
Source : Securities and Exchange Commission of Sri Lanka
* Loan-to-Value ratio is calculated considering only the loans extended by
margin providers
10.60
11.67 11.63
Aug-12 Dec-12 May-13
Loans Outstanding from Margin
Providers (LKR Billions)
27.98%
31.50%
29.87%
Aug-12 Dec-12 May-13
Loan-to-Value Ratio *

0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
Regulation became more “market friendly”…
ASI
Source : Securities and Exchange Commission of Sri Lanka
SEC relaxes
rules on
price bands
SEC further relaxes
rules on debt
settlement
SEC Director General
leaves office
SEC Chairperson resigns
SEC directive permits brokers
to extend credit to investors
up to three times net adjusted
capital
SEC revokes directive
on price bands all
together
SEC Chairman resigns
with an additional
commissioner following
suite
SEC Director General
resigns
SEC Director of
Surveillance resigns

Equity issuances were low… take off in debt issuances…
In LKR Mn
Source: CSE, SEC, WFE, JBS Research
-
5,000
10,000
15,000
20,000
25,000
11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2
Secondary issuances
Primary issuances
Debt issuances

M&A activity was subdued…
2,770
1,811
949
2,928
4,200
328
7,000
130
843
-
350
- -
3,400
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2010 2011 2012 2013
Quarterly Volume of Mergers & Acquisitions
In LKR Mn
Source: JBS Research

90.2%
8.1%
1.8%
Contribution to Growth
P/E Growth Earnings Growth Combined Effect
100%
21.7%
1.9% 0.4%
124%
Jun-12 P/E Growth Earnings
Growth
Combined
Effect
Jun-13
Disaggregation of Market Cap Growth
Expectations have driven the market…
Source: CSE, JBS Research

0
5
10
15
20
25
0
5
10
15
20
25
TRD
P&E
Sample PER
Sample PER Ex BFI
Bifurcated market…
23.7% 4.5% 25.3% 4.7% 7.3% 22.6%
1.3%
3.4%
1.9% 1.3% 1.3%
1.2%
0.4%
Market PER
29 July 2013
Sample: 60 Largest Companies, represents 80% total Market Cap
12.1
14.7
P/E
(Sample Sector capitalization)/(Total sample capitalization)Data: Bloomberg L.P. , JBS Research.
BFT OIL DIV H&T TLE BFI
MFG
HLT
C&E
INV
L&P MRT
1.0%

Equity Risk Premium has fallen… risk is being under priced
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
Source: JBS Research
In calculating the implied equity risk premium the following
assumptions have been made:
Nominal Earnings Growth
Years 1-5: 20%
Years 6-15: 16%
Perpetual : 14%
10 Year T-bond (09.00%2023A): 11.59%

Relative valuations high compared to peers …
6.3%
5.0%
7.3%
6.1% 5.9%
8.2%
4.1%
3.7% 3.9% 3.9%
8.1%
11.6%
Malaysia Phillipines Vietnam Thailand India Sri Lanka
Earnings Yield 10Y Bond Yield
as at 30/07/2013
Source: Bloomberg LP, CBSL, AsianBondsOnline.org
BEER Ratio*
0.65
0.74
0.53
0.63
1.37
1.41
Interpretation of BEER* (Bond Equity Earnings Yield) Ratio, calculated as (Bond Yield/Earnings Yield): This is best used as a measure of exclusion, i.e. when BEER ratio > 1, the
market can be interpreted as being overvalued. However, a BEER < 1 does not imply that equities are undervalued; it simply indicates that valuations merit further
investigation.

Three-speed post conflict economy …
Leaders > CAGR 8.70% Steady CAGR 6.40% - 8.70% Laggards < CAGR 6.40%
Hotels and Restaurants
Construction
Mining and Quarrying
Post and Telecommunication
Cargo-Ports and Civil Aviation
Import Trade Domestic Trade
Electricity, Gas and Water
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
- 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400
Private Services
Export Trade
Agriculture, Livestock and Forestry
Government
Services
Ownership of Dwellings
% CAGR, YE2009-12
GDP real sector size, YE2009: LKR2,449Bn
Growth,YE2009/12: 7.55%
Passenger, Goods and Railway Transport
Banking, Insurance and Real Estate etc.
Fishing
Manufacturing

Construction
Manufacturing
Domestic Trade
Bank’,Insur’ & Real Est’ etc.
Import Trade
Mining & Quarrying Agri’, Livestock & Forestry
Export Trade
Electricity, Gas and WaterFishing Private Services
Hotels and Restaurants
Government Services
Cargo and Civil Aviation Ownership of Dwellings
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18%
% Contribution to growth, YE2009-12
Leaders > 8.70%
Steady 6.40% - 8.70%
Laggards < 6.40%
All in CAGR 2009-12 Passenger, Goods &
Railway Transport
Post & Telecommunication
% GDP Sector share, YE2009
Non-tradable sectors driving growth…

Concerns about estimates used in compiling National Accounts…
Note
1. 75% of mining & quarrying (excluding gem mining) is estimated through growth in cement demand.
2. Cement is a key proxy in estimating residential construction which is a large component of the construction industry.
13%
28%
22%
21%
Industry estimate CBSL estimate Construction industry
growth
Mining & Quarrying
industry Growth
excluding Gem Mining
Cement
5.2 Mn/MT 5.8 Mn/MT
Real Growth, YE2012
Contribution to
growth 2011/12
24% 7%

937
1,025
1,131
343
408
426
2010 2011 2012
Limited fiscal space due to high committed spending…
32.1% 31.2%
Personnel
37.6% 34.8% Interest
20.9%
21.1% Subsidies and Transfers
9.4% 12.9% Other Goods and Services
2010 2011 2012
20.0%
4.4%
1,280
30.7%
36.1%
20.8%
12.4%
46.4% 45.0%
Transport and Communication
18.7% 19.7%
Energy and Water Supply
7.0% 6.8%
Agriculture and Irrigation
5.3% 5.3%
Education
5.7% 6.8% Civil Administration
5.1% 4.5% Community Services3.7% 3.5%
Health8.0% 8.4%
Other
2010 2011 2012
19.3%
46.1%
6.5%
6.0%
7.6%
6.8%
3.9%
3.9%
Current Expenditure
Capital Expenditure and Net Lending
Committed Spending
LKR Bn.
Gov’t Expenditure
9.4%
10.3%
1,557
1,433
11.9%
8.6%

(20.3)
(94.5) (89.7)
5.0
(19.3)
(61.2)
(0.3)
(21.6)
(28.8)
(0.8)
(7.4)
(10.0)
2010 2011 2012
Sri Lanka Transport Board
Airlines
Ceylon Electricity Board
Ceylon Petroleum Corporation
Combined Operating Losses of Main State
Owned Enterprises
Combined Earnings of the Market
Combined Operating Loss as a % of GDP
LKR Bn
LKR Bn
Combined earnings (USD Bn)
Source: Ministry of Finance and Planning, CSE, JBS Research Analysis
* Cross holdings have not been eliminated
The SOE monsters keep bleeding…
(189.6)
(1.5)
(142.8)
(1.3)
(16.4)
(0.1)
Combined loss (LKR Bn.)
Combined loss (USD Bn.)
-0.3%
-2.2%
-2.5%
2010 2011 2012
146.3
182.7
214.7
2010 2011 2012
1.65
1.68
1.29

96
114
134
2009 2010 2011
12.9% 12.4%
11.1%
1.7%
1.9%
1.9%
0.3%
0.2%
0.2%
2010 2011 2012
Tax buoyancy low…needs further broad basing and rebalancing
14.6%
14.3%
13.0%
30.7%
Revenue to GDP Tax revenue LKR Bn.
Grants
Non-tax
Tax
725
846
909
CBSL profit
transfers
were 30%
of non-tax
revenue
Estimated Sin Taxes*
Source: Central Bank of Sri Lanka, Ministry of Finance and Planning JBS Research Analysis
LKR Bn.
18.7% 18.6% 19.0%
30.4%
26.7% 25.3%
17.9%
24.2%
24.6%8.9%
9.4%
8.8%
6.8%
7.8%
7.7%
9.6%
7.2%
6.6%
6.4%
4.2%
4.3%
1.4%
1.8%
3.7%
2010 2011 2012
1
Special Commodity Levy
Other
Excise Tax
Ports & Airports
Development Levy
Import Duties
VAT
Income Tax
Nation Building Tax
Direct
Indirect Percentage of total taxes
16.5%
15.7%
15.6%
* Taxes collected from tobacco and liquor industries
16.7%
7.4%
1
6.
7
%
1
6.
7
%
18.8%
17.5%

Government indebtedness is increasing…
Better Indicator?Is this the Best Indicator?
81.9%
78.5% 79.1%
66.8%
52.1%
44.3%
41.9%
2010 2011 2012 India Vietnam Thailand Philippines
550% 541%
600%
348%
234%
206% 198%
2010 2011 2012 India Philippines Vietnam Thailand
Total Debt to Government RevenueGovernment Debt / GDP
Peer data as of 2011Peer data as of 2011
Sri Lanka Sri Lanka

78%
82% 79%
22%
18% 21%
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2006 2011 2012 Philippines India Thailand Vietnam
Decline in spending on social infrastructure…
Recurrent
Capital
Public Expenditure on Education
(% of GDP)
Public Expenditure on Healthcare
(% of GDP)
76%
83% 83%
24%
17%
17%
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2006 2011 2012 India Philippines Vietnam Thailand
Recurrent
Capital
Sri Lanka Sri Lanka
World Bank Metadata, Annual Report 2012 – CBSL 2013
Peer nations - 2010 Peer nations - 2011

Inadequate public expenditure on Tertiary Education…
6.4
2.4
1.1
0.3
1.0
Sri Lanka Vietnam Thailand Philippines India
Outbound Mobility Ratio
Students studying abroad as a percentage of tertiary enrolment
32
43
22
10
70
Public Expenditure Spent on Pupil, Tertiary
Percentage of Per Capita GDP | 2010
14
24
48
30
10
Tertiary Gross Enrolment Ratio
Percentage of population of tertiary age in tertiary education
Source: World Bank, AT Kearney, Key Indicators for Asia and the Pacific 2011 – ADB, Annual Report 2012

USD/Oz
Banks heavily exposed to pawning*… Asset Quality will suffer
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan12
Feb12
Mar12
Apr12
May12
Jun12
Jul12
Aug12
Sep12
Oct12
Nov12
Dec12
Jan13
Feb13
Mar13
Apr13
May13
Jun13
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
Gold
Annual Change
Gold Price Crashed…
454
196
124
41
34
12
12
585
251
147
55
48
17
11
Industry
PB
BoC
SAMP
HNB
SEYB
COMB
2011
2012
Banks’ Exposure
10.7%
17.5%
38.5%
22.0%
13.0%
23.0%
3.6%
13.1%
18.6%
38.0%
20.5%
15.6%
25.4%
2.8%
Pawning as a % of total gross loans
Source: Central Bank of Sri Lanka, kitco.com, JBS Research Analysis
LKR Bn.
*Pawning – gold back loan where interest and principle is paid at the end, maturity is 12 months

Lower gold prices + lower LTV… pawning advances will contract
Growth in Total LKR LendingLower Pawning Advances…
Falling LTV ratios
combined with lower
gold prices will reduce
pawning advances
515
434
60
277
454
585 593
475
2010 2011 2012 Apr-13 2013E
16.9% 21.1% 22.6% 22.8% -
-
100
200
300
400
500
600
700
64.1%
28.7%
1.5%
-20.0%
Pawning as a % of total LKR lending
338
304
51
177
130
9
2011 2012 Apr-13
64.1% 28.7% 1.5%
31.5% 20.2% 2.3%
Pawning advances
Other advances
Pawning growth
LKR lending growth

0
5
10
15
20
25
0
5
10
15
20
25
BFT OIL DIV H&T TLE BFI
HLT
TRD
MFG
INV
L&P
P&E
MRT
P/E
Sample P/E Ex BFI
Sample P/E
P/E
12.1
14.7
14.4% 3.0% 18.3% 4.1% 8.3% 36.4%
0.8% 0.8%
3.9% 2.5%
1.9%1.8%
2.6%
1.3%
Data: Bloomberg L.P. , JBS Research. (Sample sector earnings)/(Total sample earnings)
Market PER
29 July 2013
Sample: 60 Largest Companies, represents 83% total Market Earnings
C&E
Financial sector represents 37% of market earnings ….

Exports’ share has declined … Competitiveness is eroding …
-1.0
-0.5
0.0
0.5
1.0
-1.0
-0.5
0.0
0.5
1.0
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07
Economic Complexity Score²
Sri Lanka India Thailand Philippines
LKA
PHL
IND
THA
Source: The Atlas of Economic Complexity, Mapping paths to prosperity, Hausmann, Hidalgo et al. (2008). Observatory of Economic Complexity :http://atlas.media.mit.edu Retrieved: 30th June 2013,
World Bank Economic Database, Annual Report 2012: CBSL 2013.
Economic Complexity² refers to the “amount of productive knowledge that each
country holds” Is measured by the complexity of exported goods
Exports¹ – Exports of Goods and Services
0
5
10
15
20
25
30
35
40
45
50
0
5
10
15
20
25
30
35
40
45
50
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
Exports¹ and Remittances as % of GDP
Average exports Average (Exports + Remitances)
% of
GDP
% of
GDP
Exports (G&S)
Remittances
Remittances have Cushioned the Impact of Declining
Exports
Complexity of Exported Goods have not Kept Pace
with Peers

Sri Lanka - Composition of exports have remained stagnant
Net Goods Exports Tree Map - 2010Net Goods Exports Tree Map - 1995
$2,847Mn $7,363Mn
0
10
20
30
40
50
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
Exports (G&S)
“Sri Lanka’s export
share of GDP has been
declining”
% of GDP
19%
2.6X
Source: Observatory of
Economic Complexity
:http://atlas.media.mit.edu
Retrieved: 30th June 2013 ,
World Bank Economic
Database, Annual Report
2012: CBSL 2013

In comparison Thailand - Composition of exports have diversified
Net Goods Exports Tree Map - 2010Net Goods Exports Tree Map - 1995
$36,244Mn $118,715Mn
0
20
40
60
80
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
“Thailand’s export
share % of GDP has
been steadily
increasing”
Exports (G&S)
% of GDP 79%
3.3X
Source: Observatory of
Economic Complexity
:http://atlas.media.mit.edu.,
Retrieved: 30th June 2013
World Bank Economic
Database.

Foreign Direct Investment FDI as a % of GDP
* FDIs excludes loans as per the UNCTAD presentation
* Peer data as of 2011 except Thailand (2010)
FDIs* remain low ….
Reinvested
earnings
Other
capital
Equity capital
USD millions
195 218 246
44 33
71
239
705 582
2010 2011 2012
956
1.0%
1.6% 1.5%
0.6% 0.7%
1.2%
2.8%
3.7%
6.0%
2010
2011
2012
Phillippines
Bangladesh
India
Thailand
Malaysia
Vietnam
478
899
100.0%
-6.0%
Sri Lanka

-2.2%
-7.8%
-6.6%
-4.0%
0.2%
0.9%
3.1% 3.2%
11.1%
2010
2011
2012
India
Vietnam
Bangladesh
Phillipines
Thailand
Malaysia
(1,075)
(4,615)
(3,915)
2010 2011 2012
Current account deficit remains high… funding it may be a challenge
Current Account Deficit to GDPCurrent Account Deficit
USD millions
329.3%
-15.2%
Sri Lanka

4,150
5,072
4,011 4,162
2,880
3,549
3,979
4,423
8.3
7.7
4.7
5.4
0
1
2
3
4
5
6
7
8
9
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2009 2010 2011 2012
Reserve Adequacy*Gross Reserves
Reserve adequacy – depends on what you look at…
USD millions
Net reserves
7,030
8,621
7,990
8,585
77.5%
84.4%
48.2%
41.3%
131.3%
143.5%
96.1%
85.3%
2009 2010 2011 2012
Net foreign reserves/short-term debt
Gross foreign reserves/short term debt
Source: Athukorala, P (2013), “Sri Lanka’s Post-conflict Development Challenge: Learning from the Past“
* Net reserves
as estimated by
the IMF after
netting out
short-term
borrowings
from gross
reserves
Import Cover

• Third Amendment 27th August 1982 President was given power to seek re-election after 4 years of a term
of office.
• Seventh Amendment 4th October1983 President was given power to appoint Commissioners of the High
Court temporarily when requested by the Minister in charge of the
subject of justice.
• Eighth Amendment 6th March 1984 President was given power to appoint President’s Counsel. By this
President can influence the judiciary.
• Thirteenth Amendment 14th November 1987 President was given power to appoint the Governor for a Provincial
Council.
• Seventeenth Amendment 3rd October 2001 Setting up Constitutional Council and Independent Commissions.
• Eighteenth Amendment 8th September 2010 Two term limit on the tenure of the Executive has been removed, there
are currently no term limits.
President was given power to appoint members to the Independent
Commissions.
The current constitution was introduced in 1978, provides for a unicameral parliament and an Executive President. Up to date it
has been formally amended 18 times. Constitutional amendments have strengthened the executive at the expense of other
branches of government. This relative weakening of parliamentary and judicial powers along with other civil institutions has
contributed to greater concerns regarding the quality of governance in the country.
Constitution has weak checks and balances…

Favorable rains… more hydro in generation mix … less thermal
Total hydro
capacity (MW)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Hydro contribution
Reservoir storage
20%
61%
68%
77%
38% 27%
3% 1% 5%
Jun-12 Dec-12 Jun-13
Hydro
Thermal
Other
Source: Ceylon Electricity Board, Central Bank of Sri Lanka,
Ministry of Finance and Planning, JBS Research
1,574 1,596 1,601
Reservoir Storage & Hydro Contribution Electricity Generation Mix

20.1% 21.0% 21.3% 21.4%
No. of Persons ‘000
114 113 108 119
83 94
92
100
50
60
63
63
2009 2010 2011 2012
Housemaid
Unskilled
Skilled1
247
267
262
282
SLBFE
JBS
Estimate
% of
Labour
Force2
1 Skilled Category includes skilled, semiskilled, professional, clerical and middle level categories
2 JBS Estimates are used to calculate the % of Labour Force Source : Sri Lanka Bureau of Foreign Employment, JBS Research Analysis
1,831
1,932
1,680
1,762
1,820
1,862
2009 2010 2011 2012
Departure for foreign employment continues …
Stock of Migrant EmployeesAnnual Registrations for Departures

Qatar
Kuwait
UAE
Libya
Saudi Arabia Algeria Iraq
Angola
Nigeria
Ecuador
Iran
0
20
40
60
80
100
120
0 5 10 15 20 25 30 35
Dollarsperbarrel
Oil Production (mb/d)
OPEC has High Budget Breakeven Costs
Breakeven Cost Budget Breakeven
Oil prices expected to remain at current levels …
60
80
100
120
2010 2011 2012 2013 2014 2015 2016
Oil Price Forecast
IMF Forecast World Bank Forecast EIA Forecast (Brent)
10.0%
15.0%
20.0%
25.0%
30.0%
-
500
1,000
1,500
2,000
2,500
3,000
2008 2009 2010 2011 2012
Oil Imports
Oil imports (% of total) (RHS) Total Imports (LHS) Oil Imports (LHS)
Source: IEA, EIA, CBSL, IMF, World Bank, JBS Research
In LKR Bn
Forecast figures In
constant USD

377 473 524
393
470
490
503
550
546
415
475
549
415
507
541
2011 2012 2013
Amounts in USD millions
2,103
2,476
2,649
Annual Departures in Skilled Categories (No. of Persons ‘000)
Annual Departures to non Middle Eastern Destinations (No. of Persons ‘000)
Source : Sri Lanka Bureau of Foreign Employment, Central Bank of Sri Lanka1 Skilled category includes skilled, semiskilled and middle level categories
16
16
15
3 3
3
1 1
1
2010 2011 2012
Europe
Asia
Other
20 21
19
7.3% 7.9% 6.6%
83 78 80
8
10 16
3 4
4
2010 2011 2012
Professional
Skilled1
Clerical and related
94
35.2%
92
100
34.8% 35.5%
Total
% of Total
Total
% of Total
January
February
March
April
May
Remittances will continue to grow … albeit at a slower pace

Tourism arrivals continue to grow … albeit at a slower pace
397.1
484.3
2012 2013
172,602
196,355
173,214
194,924
31,167
37,697
2012 2013
Source SLTDA, CBSL
Middle East
Eastern Europe
Australasia
Asia
Western Europe
Other
North America
Tourist Arrivals by Major Region
Jan - June
Conferences and Meetings
• SEARCC International conference,
August 2013
• International Conference On Hospitality &
Tourism management(ICOHT), October
2013
• Commonwealth Heads of Government
Meeting(CHOGM) , 15 to 17 November
2013
Beach Festivals
• Hikka Fest, July 2013
• EDM festival Mirissa , July 2013
• Vibes of Una, August 2013
Kandy Esala Perahera, 5 to 21 August 2013
Kataragama festival, July to August 2013
20132012
Upcoming Demand DriversTourism Earnings (US$ Mn)
Jan- May
13.1%
22.0%

Two large Integrated Resort Developments in the offing …
Sources : Colombo Stock Exchange - Corporate Announcements, Newspaper Articles
Waterfront Properties (Pvt) Ltd
• Promoted by the largest listed company,
conglomerate JKH.
• Proposed investment - US $ 650Mn
• Location - 17 acre land located at Glennie Street
and Justice Akbar Mawatha, Colombo 2.
• Scope - Luxury hotel, convention center,
entertainment facilities, shopping complex,
luxury condominiums and office units.
• Expected employment generation – 3,000
Lake Leisure Holdings (Pvt) Ltd
• Joint venture between Rank Holdings and
Australia’s Crown Group.
• Proposed investment - US $ 350Mn
• Location - 500 perch block at D. R. Wijewardena
Mawatha.
• Scope - 36-floor casino complex and a super
luxury resort coupled with a mega hotel with
400 rooms.
• Expected employment generation – 2,600

Source: Treasury Report 2012, Ministry of Finance & Planning, SLASSCOM, ATKEARNEY, Newspaper Articles
Industry Revenues Growing
at a Healthy Pace
NominalUSDMn.
IT/BPO industry continues to grow…
Employment Increasing
34
39
43
50
63
67
-
10
20
30
40
50
60
70
80
2007 2008 2009 2010 2011 2012
000’s
+15%
CAGR
Industry Direct Employment (000’s)
175
230
245
265
387
500
0
100
200
300
400
500
600
2007 2008 2009 2010 2011 2012
+23%
CAGR
Industry Export Revenue (USD Mn)

0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: www.internetworldstats.comSource: TRC Sri Lanka
Internet and Email Subscribers
(As a percentage of tot. population |Dec 2012)
Internet and Broadband usage expanding rapidly
Internet Penetration Rate
(Mid-2012)
11%
15%
22%
30%
34%
61%
India Sri Lanka Indonisia Thailand Viet Nam Malaysia

0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2010 2011 2012 2013E
Main Commodities are ~35% of Total Imports
Milk & milk products
32.8% 33.3% 35.5% % of Total imports
> $400m
0
50
100
150
200
250
300
2010 2011 2012 2013F
Commodity Price Indices
2005 = 100
Source: International Monetary Fund
Oil
Base metals
Sugar
Milk and milk products
Wheat and Maize
Fertilizer
0.7%
-6.1%
53.3%
Oil
Base metals
Wheat and Maize
Sugar
Fertilizer
Source : Central Bank of Sri Lanka, JBS Research
USD Mn
Softer commodity prices will reduce import bill…

Rubber Tyres
Gloves
Other Rubber
Products
Raw rubber
0
200
400
600
800
1,000
1,200
2010 2011 2012 2012
Jan-Apr
2013
Jan-Apr
Rubber Based Exports
3.203.803.34 4.84 3.35
Bulk
Packets
Bags
Instant Tea
0
200
400
600
800
1,000
1,200
1,400
1,600
2010 2011 2012 2012
Jan-Apr
2013
Jan-Apr
Tea Exports
4.30 4.90
4.39 4.62 4.41
Average price
(USD/kg)
* All amounts in USD Mn.
Falling prices… tea exports are holding up… but not rubber

1,616
2,022
1,836
1,359 1,325
1,349
1,647
1,589
214
317
360
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2010 2011 2012 2012
Jan-Apr
2013
Jan-Apr
90% of Apparel Exports are to North America & EU
49%
109.8100.0 113.5Volume index
European Union
North America
Other
3,179
3,986
3,785
10%
42%
* All amounts in USD Mn.
Apparel exports are holding up …

Structural adjustments continue … Electricity tariff hike
8.2
11.8
15.4
6.9
12.1
27.6
Off peak Day Peak
Industrial*
Previous
Revised
10.5
29.4
33.6
50.4
13.2
37.1
42.7
58.8
61-90 91-120 121-180 >180
Consumption block (kWh/month)
Domestic
Previous
Revised
LKR/kWh
Source: PUCSL, LECO
*Assumptions
User belongs to Industrial customer category 3, i.e. metered at 11,000 Volt.
79%
2%
-16% 26%
26%
27%
17%
LKR/kWh

Structural adjustments continue … Fertilizer subsidy being reduced
26,935
26,028
29,802
36,456
37,800
2009 2010 2011 2012 2013E
Fertilizer Subsidy
0.05% 0.05% 0.05%0.05% 0.04%% of GDP
LKR million
Source: CBSL, Ministry of Finance & Planning
350 350 350 350
1,845
2,245
2,913 2,996
2009 2010 2011 2012
Subsidy Subsidized price
Fertilizer Price
LKR/50Kg
Recent Developments…
• Government slashed subsidy by
approximately 30%, citing health
issues caused by chemical
fertilizer.
• Issuance of fertilizer has been
limited to 76 kg’s per acre while
the recommendation was 90 kg’s.
• Government continues to delay
the subsidy payments of Rs. 16
billion to fertilizer importers.
• Fertilizer companies have
restricted imports due to liquidity
problems.

LKR Debt Service Obligations External Debt Service Obligations
0
100
200
300
400
500
600
700
800
900
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Interest
Repayment
-
50
100
150
200
250
300
350
400
450
500
550
600
650
700
750
800
850
900
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
2051
Interest
Repayment
Domestic liabilities are near term … External liabilities are longer term
* All amounts in LKR Bn.
Long dated liabilities

Credit to GDP low… higher savings will be required to boost it
Credit to GDP
19.3%
15.3%
17.0%
19.3%
28.3% 29.0%
31.0%
39.5%
2010
2011
2012
Bangladesh
Vietnam
India
Thailand
Malaysia
40.4%
46.4% 48.8%
70.4% 74.1%
120.7%
128.7%
159.2%
2010
2011
2012
Bangladesh
India
Vietnam
Malaysia
Thailand
Gross Domestic Savings to GDP
*Peer data as of 2011 Source: World Bank, Central Bank of Sri Lanka, Asian Development Bank
Sri LankaSri Lanka

132 132
98 99
89
2012 2013
India Vietnam Sri Lanka
SL continues to gain further in the Doing Business ranking…
Sri Lanka Vietnam
2012 2013 2012 2013
Overall 89 81 98 99
Starting a business 38 33 103 108
Construction permits 111 112 67 28
Getting electricity 95 103 135 155
Registering property 161 143 47 48
Getting credit 78 70 24 40
Protecting investors 46 49 166 169
Paying taxes 173 169 151 138
Trading across
borders
53 56 68 74
Enforcing contracts 136 133 30 44
Resolving insolvency 42 51 142 149
81
The World Bank Doing Business Ranking out of 185 Countries
Source: Doing Business, The World Bank, 2013
Thailand 18
Sri Lanka 81
Vietnam 99
India 132
Philippines 138
India
2012 2013
132 132
166 173
181 182
98 105
97 94
40 23
46 49
147 152
109 127
182 184
128 116

2010 2011 2012 2013 2014 2015 2016 2017
Colombo - Galle
Matara Extension
Hambatota Extension
Colombo - Katunayake
Kottawa - Kaduwela
Kaduwela - Kadawatha
Kadawatha - Kerawalapitiya
Enderamulla - Mirigama
Mirigama - Kurunegala
Mirigama - Kandy
Kurunegala - Dambulla
Southern
Expressway
Katun
ayake
Expre
ssway
OuterCircular
Expressway
North-Eastern
Expressway
Southern
Expressway
Katunayake
Expressway
USD1Bn Combined
Outer
Circular
Expressway
North East
Expressway
Eastern Expressway
Northern Expressway
Outer Circular Expressway
Kandy Expressway
Katunayake Expressway
Southern Expressway
Completed or
Near Completion
Contracted or
ongoing
Feasibility Stage
Northern Expressway, Eastern Expressway and Extension of Southern Expressway to Mattala under consideration.
USD168Mn
USD330Mn
USD219Mn
USD400Mn
USD521Mn
Time Table for Major Expressway Development Projects
Source: Ministry of Ports and Highways, RDA, CBSL, Government Treasury, JBS Research
Major expressway network under construction…

USD475Mn
USD891Mn
USD500Mn
USD600Mn
USD529Mn
USD82Mn
USD90Mn
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Norochcholai I
Norochcholai II
Sampur
Hambantota
Upper Kotmale
Uma Oya
Broadlands
Moragolla
Victoria Expansion
Gin Ganga
CoalHydro
Power generation moving away from relying on petroleum fuels…
Sampur Coal
Time Table for Major Power Generation Projects
Hydro
Coal
Norochcholai Coal
Victoria Expansion
Broadlands Hydro
Upr. Kotmale Hydro
Moragolla Hydro
Gin Ganga Hydro
Uma Oya Hydro
Completed or
Near Completion
Contracted or
ongoing
Feasibility Stage
1,920GWh
3,840GWh
3,480GWh
3,679GWh
409GWh
312GWh
126GWh
81GWh
600GWh
143GWh
Source: Ministry of Power and Energy, CEB, CBSL, Government Treasury, JBS Research

Ports and Aviation infrastructure being expanded…
Colombo Port
South Harbour Development Project – USD875Mn (Incremental transshipment capacity
of 7.2mn TEU)
4.5
2.4
4.8
11.7
2012 2013 2014 Completion
Transshipment capacity build-up at
Colombo (millions)
Hambantota Port
Phase I (Complete) – USD 306 Mn (Initial commercial operations commenced)
Phase II (Ongoing) – USD 810 Mn (Expected to be operational in 2014)
80,000 MT Bunkering Tank Farm – USD 130 Mn (operational end 2013)
Mahinda Rajapakse International Airport
Phase I (Complete) – USD209Mn (Passenger capacity of 1 Mn p.a.)
Phase II – Additional Passenger Capacity of 4 Mn p.a. (by 2015)
Bandaranaike International Airport
Expansion to end by 2015 – USD 425Mn (Passenger capacity of 6Mn p.a.)
1.0
4.0
5.0
2013 2014 2015 Completion
Passenger capacity build-up at
MRIA (millions)
Colombo Port
H’tota Port
MRI Airport
B’daranaike Airport
Source: Ministry of Ports and Highways, Sri Lanka Ports Authority, CBSL, Government Treasury, JBS Research

Labour supply conditions are favourable…
Source: United Nations ,Population Division. World Population Prospects: The 2010 Revision/ Department of Census and Statistics Sri Lanka (Alternative estimates)
28%
21%
61%
63%
10%
16%
2010 E2017
100% (000’) = 13,921 14,402
Older
(55+)
Prime
(25-54)
Young
(15-24)
Composition of Working Age
Population (aged 15 to 64 years)
Current Labour Supply 000’, Q4-2012
9,990
7,614
5,040
4,883
10,287
2,246
8,646
2,573
2,562
157
2,378
1,823
6,084
184
Total population
Population<15Yrs
Working age
population, 15+Yrs
Not participating
Total labour force
Unemployed
Employed
20,278
4,068
16,620
8,658
7,602
341
7,261
Male Female

Source: Department of Census and statistics, June 2013, JBS Research analysis
5,040 5,222
5,916
2,562
2,686
4,532
2012 E2017 E2017
0.79%
6.57%
24%
66%
50%
75%
Female Male
2012 F2017* 2012 F2017*
Participation Rates
Based on current
participation rates
Assuming participation
rates at peer average
Labour Force Prospects (000’) CAGRif participation rates increase up to average peer levels
Note: We have used alternative estimates of Sri Lanka Labor Force Survey. Alternative estimates
define employed persons as follows:
1. Minimum 20 hours of work a week rather that 1 hour a week used in the standard method.
2. Working age > 15 years.
3. Unpaid family workers are not counted.
7,602
7,908
10,449
Higher female labour participation can further expand the labour force …

Higher urbanisation will drive economic growth…
Movement in Urbanization and Per Capita GDP from 1950 to 2005
Source: World Bank Economic Database, Historical Statistics of the World Economy: 1-2008 AD - Angus Maddison
0
5,000
10,000
15,000
20,000
25,000
0 10 20 30 40 50 60 70 80 90
% of Urban Pop.
With Official Urbanization Statistics With Consensus Estimates
0
1,000
2,000
3,000
4,000
5,000
10 15 20 25 30
2.5XPer Capita GDP
(Constant 1990 Int$)
Urbanization* is officially defined as people belonging to the smallest administrative division (i.e. Municipal Council or village council). Change of classification has made the official urbanization
figure decrease from a high of 19% to about 15%. Other methodologies place Sri Lanka’s real urbanization rate as high as 35% - 45%. Dotted red line assumes a linear increase in urbanization to
35% in 2005.
JPN
KOR
MLS
CHN
IND
LKA
LKA
2X

Households Based on the Income Earning Category (SL)
Source: McKinsey Global Institute – Urban world v1.1 (App)
1,621
788
2,494
2,995
770
1,953
82
356
2010 2025 2010 2025 2010 2025 2010 2025
Poor <$7,500 Middle income
$7,500-20,000
Affluent $20,000-
70,000
Elite >$70,000
33%
13%
50%
49%
16%
32%
2%
6%
2010 2025
% of Households
2.54x
1.20x
4.34x
0.49x
100%=4,967 100%=6,092
In 000’/$PPP
Rapid growth in projected affluent & elite households

3%
5%
8%
16%
25%
42%
Reserve Guestimate for the Mannar basin
Confirmed existence of Working Hydrocarbon systems
Diesel
Furnace Oil
LPGKerosene
Other
139.5
5.1
Expected energy yeild
from exploration
Energy demand
(YE2011)
TOEMn
27X
Petrol
TOE-Ton of oil equivalent : Energy released by
burning 1 MT of crude oil
Energy
decomposition
(TOE basis)
2012
Expected energy
yield from
exploration
Energy demand
(YE2012)
C1
C2
C3
C4
C5
M1
M2
M3
M4
M5
M8
M6
M7M9
JS1 JS2
JS3
JS4
JS5
JS6
Blocks :
Mannar basin
Cauvery basin
Available to joint studies
$2,300Mn
Seismic Surveys
Exploratory Drilling
Appraisal of commercial
viability
Setting up sub- sea
completion (Upstream)
Setting up transport
infrastructure (midstream)
Downstream activities
2010 2011 2012 2014 2015 2016 2017 2018
150
1,500
1,000
500
Time line
Cost ($Mn) incurred by Cairn Lanka Open to investors
Operated by Cairn Lanka Pvt. Ltd
13 blocks waiting for
the second round
of bidding
(30/09/2013)
Potential for bridging the fossil fuel deficit…
Source : PRDS Sri Lanka, CBSL annual report 2012,JBS Research
2013
150

Diaspora opportunity…
W. Europe (000's)
France 39
Germany 41
Switzerland 30
Netherlands 10
120
Canada
106,000
Italy
60,000
Australia
94,000
New Zealand
7,000
Sweden
7,000
Norway
9,000
U.K.
131,000
S. Korea
20,000
Japan
9,000
Denmark
7,000
Aggregate (000's)
Europe 337
N. America 154
Australasia 101
Asia 29
621
U.S.A.
48,000
OECD Countries with Significant Populations of Sri Lankan Born Individuals
Source: OECD Migrant database http://stats.oecd.org/Index.aspx?DatasetCode=MIG

Total local individuals
Equities are under owned…
Source : CSE fact book*Active local individuals : Investors who executed at least one transaction at the Colombo Stock Exchange
35
79
114
62
336
332
378
457
2009 2010 2011 2012
0.44 % 0.95 % 1.38 % 0.71 %
Inactive local individuals
Active local individuals*
Active local individuals
as a % of economically
active population
371
411
493
519
All amounts in thousands

Outlook for the Economy
• Economic growth going forward will trend towards its potential rate of 6%.
• Higher growth is possible if there is greater focus on improving productivity, greater fiscal consolidation and a
stronger policy bias towards export industries.
• Interest rates will hover around current levels due to a loose monetary policy bias and lack of demand for
credit. Pawning that accounts for 22% of private sector credit will contract by 20% on the back of falling gold
prices and lower LTVs.
• Exchange rate will be range bound around USD/LKR 132-134 for the rest of 2013. Higher import demand
fuelled by credit growth can create pressure on the exchange rate.
• The start of a tapering program by the Federal Reserve of its quantitative easing program can have a fallout in
the form of a partial pullback of the USD 3.8 billion invested in LKR GSECs by FIIs - this will impact both the
exchange rate and interest rate.
• Absence of major electoral pressure over the next 12 months provides space for further fiscal consolidation.
With tax revenue to GDP at 11% and below peer countries, it is likely that further tax raising measures may be
implemented in the upcoming budget that will impact both consumption and earnings of firms.
• Remittances will continue to grow albeit at a slower pace - this will relieve pressure on unemployment and
boost household income aiding consumption.
• Potential benefits from a Natural Gas discovery is 3-4 years away and its viability will depend on high global gas
prices.
• Increasing foreign borrowings coupled with a slow down in economic growth can affect debt dynamics leading
to a middle income debt trap.

Outlook for the Equity Market
• The sideway market continues into its 3rd year after the unprecedented bull market that ended in mid 2011. A
sideway market is characterized by rising earnings but is negated by falling multiples thus prices remain range
bound.
• Although the market has pulled back in the last month, valuations especially on the large cap counters remain
very high. Adjusted for the risk free rate and the equity risk premium, market PE multiples excluding financials
are at elevated levels.
• Financials account for 37% of total market earnings, outlook for the sector in 2013 is poor on the back of low
credit growth, deteriorating asset quality, falling NIMs due to timing mismatches in repricing assets and
liabilities and the absence of one off translation gains from a large depreciation of the currency. Lower earnings
from financials in the absence of lower prices will increase the market PER going forward.
• It is unlikely that FIIs would pull out of the market if the Federal Reserve starts tapering its QE program BUT the
level of inflows that were witnessed in the previous 12 months will not be maintained.
• Incremental demand for equities will have to come from domestic sources both institutional and retail - falling
interest rates provide a favourable environment but concerns about lower earnings growth may negate this.
• New supply of equities from primary and secondary capital raisings will be subdued over the next 12 months.
We do not foresee any large sell downs especially from government controlled financial institutions over this
period.
• An investment strategy based on morphing the index or investing across the board will yield poor results due to
potential gains being eroded by falling multiples. A more nuanced strategy based on hunting for value stocks
has the potential to yield superior returns.

Glossary
BFI Banks, Finance & Insurance
BFT Beverage, Food & Tobacco
C&E Construction & Engineering
DIV Diversified
H&T Hotels & Tourism
INV Investment
L&P Land & Property
MFG Manufacturing
OIL Oil Palms
P&E Power & Equipment
TLE Telecom
TRD Trading
Indices
ASI All Share Index
S&PSL20 S&P Sri Lanka 20
Countries
LKA Sri Lanka
CHN China
IND India
MLS Malaysia
KOR Korea
JPN Japan
PHL Philippines
THA Thailand
Colombo Stock Exchange Sectors Institutions
ADB Asian Development Bank
CBSL Central Bank of Sri Lanka
CEB Ceylon Electricity Board
EIA Energy Information Administration
IMF International Monetary Fund
OECD Organization for Economic Cooperation & Development
OPEC Organization of the Petroleum Exporting Countries
PRDS Petroleum Resource Development Secretariat
RDA Road Development Authority
SEC Securities & Exchange Commission
SLASSCOM Sri Lanka Association of Software and Service Companies
SLBFE Sri Lankan Bureau of Foreign Employment
SLTDA Sri Lanka Tourism Development Authority
TRC Telecom Regulatory Commission
PUCSL Public Utilities Commission of Sri Lanka
Units
GWh Giga Watt Hours
Int'l D International Dollars
KWh Kilo Watt hour
MT Metric Ton
MW Mega Watt
TEU Twenty-foot Equivalent Unit
TOE Ton of Oil Equivalent
Other
CHOGM Commonwealth Heads of Government Meeting
GICS Global Industry Classification Standard
MRIA Mahinda Rajapkse International Airport
PPP Purchasing Power Parity
SOE State Owned Enterprises
Financial Indicators
AWDR Average Weighted Deposit Rate
AWFDR Average Weighted Fixed Deposit Rate
AWLR Average Weighted Lending Rate
AWPLR Average Weighted Prime Lending Rate
CCPI Colombo Consumer Price Index
NEER Nominal Effective Exchange Rate
REER Real Effective Exchange Rate
SLIBOR Sri Lanka Interbank Offer Rate
SRR Statutory Reserve Ratio

About Us
JB Securities Ltd is a full service brokerage firm that is licensed to operate on the Colombo Stock Exchange (CSE).
The firm was a founding member of the Colombo Stock Exchange in 1985 and has extensive experience dealing
with domestic and foreign institutional investors and high net worth individuals and family offices.
In order to provide unique investment insights to our clients we conduct extensive deep-dive research in the
industry verticals pertaining to the large listed companies to identify their industry and business dynamics. This
process is aided by the largest team of equity analysts in the country, a majority of them either being CFA charter
holders or CFA candidates who have undergone a 20 month intensive in-house training program based on
international curricula. The firm continues to invest in the development of its analyst team to widen and deepen
its research coverage.
The firm is part of the family owned Jafferjee Brothers group based in Sri Lanka that was founded in 1944. The
group’s business interest spans a wide array of activities in trading, manufacturing and services and has extensive
experience dealing with global companies.
Equity and Debt Brokerage Manager JB Unit Trust Margin Financing

For further information contact:
Murtaza Jafferjee CFA
+94 11 2490900
murtaza.jaff@jb.lk
150, St. Joseph’s Street, Colombo 01400, Sri Lanka.
Tel: +94 112490900, Email: info.securities@jb.lk, www.jbs.lk
© Copyright 2013, JB Securities (Pvt) Ltd, All rights reserved.
This research is for our clients only. Other than disclosures relating to JB Securities, this research is based on current publicly available information that we consider reliable, but we do not represent it as accurate or
complete, and it should not be construed as such. We seek to update our research as appropriate.
JB Securities shall have no liability, contingent or otherwise, to the user or to third parties, for the quality, accuracy, timeliness, continued availability or completeness of the data or calculations in this document, nor
for any special, indirect, incidental or consequential damages which may be incurred or experienced because of the use of the data or calculations made available herein.
JB Securities does and seeks to do business with companies covered in its research reports. Investors should be aware that the firm may have a conflict of interest that could affect the objective of this report.
Investors would consider this report as only a single aid in making their investment decision.
No part of this material may be modified or altered without the prior consent of the firm.

Sri lanka outlook for equities 2013-14

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Andere mochten auch

Andere mochten auch (17)

Ähnlich wie Sri lanka outlook for equities 2013-14

Ähnlich wie Sri lanka outlook for equities 2013-14 (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (12)

Sri lanka outlook for equities 2013-14