Why Invest In Stocks?
Investing is making your money work for you by getting your money to generate more money.
Investing in stocks has consistently proven to be one of the most profitable forms of investment
The benefits include:
Immediate Buy/Sell so you can sell part of your investment any time.
Very low transaction cost.
The freedom to work at your own place, at your pace in your own time.
Easy monitoring — log in to the market from anywhere in the world.
Being able to maximise returns whilst spreading your risk.
A predictable form of investment if you know what you’re doing.
Putting you in control and freeing you of fund management fees.
Considerable tax advantages.
Things to watch out for:
The market can be a volatile place.
You must acquire knowledge of what you are doing.
You must monitor your investments.
You must learn the discipline to enter and exit the market on entry and exit signals.
Can Ordinary People Profit from the Stock Market?
Many people say things like “I’d love to get into the stock market” or “If I had more money, I’d
invest in stocks”. Many people also believe that to make a profit from the stock market you either
need to be rich already, be a full-time investment trader or be a financial whiz.
Not necessarily so.
Let’s take a look at three different scenarios of ordinary people in the stock market to see how
they fared. This will let us view how the process works, the different approaches, and how returns
Scenario 1 :
Kumara works in a manufacturing plant earning Rs.33,000 a year. After rent, living and personal
expenses, Kumara has managed to save Rs.8000 over the past 6 months that he wants to invest in
the stock market. Kumara buys 4,800 shares in ABC Company at Rs.1.60 per share (Rs. 7,680). He
also pays Rs. 109.00 brokerage fees for buying the shares. In total, Kumara has invested Rs.
Three months later Kumara decides to sell his shares. He has kept an eye on the performance of
ABC Company and it has risen to Rs. 1.80 a share. Kumara sells his shares for Rs. 8,640.00. He also
pays Rs.123.00 brokerage fees for selling his shares, leaving him with Rs. 8,517.00 That is a profit
of Rs. 728.00.
Rs. 728.00 may not sound a lot, but remember Kumara only invested Rs.7789.00 for 3 months, so
he won’t make a huge return. Nevertheless, Kumara made a 9.35 % profit which is far better than
he would have made by putting the money into his savings account.
Mary and Jude both work full-time in professional jobs. Together, they earn Rs. 120,000 per year.
After mortgage repayments, living and personal expenses Mary and Jude have managed to put
away Rs. 30,500 that they want to now invest in the stock market. They buy 3,000 shares in AAA
Company at Rs 5.00 a share (Rs.15,000) and 2,500 shares in XY Manufacturing at Rs. 6.00 a share
(Rs.15,000). They also pay Rs. 428.00 brokerage fees for the two transactions. Their total outlay is
Over the next 12 months AAA Company shares have risen to Rs. 10.00 a share and XY
Manufacturing shares have moved to only Rs. 7.50 a share. Mary and Jude sell their shares for a
total of Rs. 48,750. They pay their broker Rs. 695.00 and are left with Rs 48,055.00. Their initial
investment was Rs. 30,428.00 So, they make a profit of Rs. 17,627.00.
Amina is retired, owns her own home and earns a comfortable income from several long term
investments. Amina would like to invest Rs. 40,000 that she has set aside for buying shares.
Amina selects a portfolio of 5 companies. Amina buys 3,000 shares in ABC at Rs. 2.00 a share (an
investment of Rs. 6,000). She also buys 500 shares in AAA at Rs. 14.75 a share (Rs. 7,375) and 2,000
shares in XY at Rs. 10.00 a share (Rs.20,000 ). To complete her portfolio, Amina buys a further 500
shares in MM at Rs.5.00 a share (Rs. 2,500) and 100 shares in BB at Rs.6.00 a share (Rs 600). Amina
also pays Rs. 520.00 brokerage fees for buying the shares. In total, Amina has invested Rs.
12 months later Amina sells her shares. Four of the shares have increased in value but BB has
dropped to Rs. 4.75 a share. ABC rose to Rs. 5.00 a share returning Rs. 15,000. AAA rose to Rs. 18.50
a share returning Rs. 9,250. XY rose to Rs. 13.00 a share returning Rs. 26,000. MM rose to Rs. 8.00 a
share returning Rs. 4,000. BB dropped to Rs. 4.75 a share returning Rs. 475. In total, Amina’s
shares returned Rs. 54,725 less Rs.780.00 for brokerage. This gives a total of Rs. 53,945, earning a
profit of Rs. 16,950.00 in 12 months.
Understanding The Stock Market
The stock market is where the shares in companies are bought and sold, providing companies
options to access capital, and investors opportunities to own a share of the company and enjoy
potential gains from the company’s future performance.
The stock market offers people the ability to generate a separate income stream apart from their
daily jobs, or income streams which are superior to those from traditional savings deposits. But
before you even think about buying and selling shares, you must know the fundamentals of the
stock market and of trading.
The Role of Colombo Stock Exchange (CSE)
You can only invest in stocks through a stock exchange, an organized marketplace where stocks
are bought and sold under strict rules, regulations and guidelines. The Sri Lankan stock exchange
is called The Colombo Stock Exchange. CSE has over 235 listed companies offering a wide range
of investment choices to local and global investors. Companies are either listed on CSE Main
Board for larger capitalised companies, the Second Board for medium sized companies.
Raising Capital on the Stock Market
All companies need cash to take advantage of growth opportunities. Many start-up companies
however find themselves short of capital to fund expansion. One way to acquire this cash is to
publicly float the company. This involves selling part of the company to private individuals and
institutional investors who are then able to freely exchange these stocks on an open market.
Purchasing stocks in a company that is listed on the stock market is done through an Initial
Public Offering or IPO.
Once an IPO has been announced, you can contact the company (phone, fax or email) for a copy
of the Prospectus and complete the application to apply for an allocation of shares. Or you can
wait until the company is floated and buy shares on the open market. Besides CSE, stock brokers
will also have information regarding Initial Public Offerings.
Companies that are already listed can also raise additional money on the stock market by
offering existing stockholders the opportunity to buy more stocks in the company. For example, a
listed company wanting to raise additional capital might issue one new share at Rs. 5 each for
every three shares an existing investor owns.
When you buy shares, you are buying a share in that company and so you own a percentage of
that company. When the company makes a profit, you share in that profit in the form of a
dividend. Typically, the number of shares that have been issued multiplied by the share price
gives us how much a company is worth.
The Role Of A Broker
Who is a Stockbroker?
A stockbroker is a firm that acts as an intermediary for stock market transactions, offering
investors a variety of services in addition to executing buy & sell orders of investors. The
Stockbroker’s fee is the brokerage.
There are 15 Stockbroker firms and 6 Trading members at the Colombo Stock Exchange (CSE).
They are governed by the regulations set out by the CSE and Securities & Exchange Commission
What services do they provide?
It is mandatory for you to obtain the services of a stockbroker in transacting in the secondary
• Portfolio Management
• Execute and confirm buy / sell transactions
• Advise and facilitate takeovers and mergers
• Sponsoring listing applications for companies
• Investment advise
• Follow-up on defaulters
• Settlement of transactions - T+3 for Equities and Delivery vs Payment (DVP) for Corporate &
• Opening of Securities Accounts
• Deposit of Securities
• Withdrawal of Securities
• Transfer of Securities
• Generation of Contract Notes
• Attending to the documentation
• Settlement of transactions
• Assistance and information dissemination with regard to new issues
• Research and reports on the performance of listed companies and their securities
Qualities of an Investment Advisor
The Stockbroker should act in the client’s best interest. Therefore, he should possess the
He should be qualified and experienced and have a thorough knowledge of market behaviour.
Your broker should be certified by the CSE and hold the Investment Advisor Certification.
The stockbroker should give fair treatment to his clients, and not for his personal gain. He must
account for all transactions properly.
• Knowledge about ‘‘what’s happening around’’
The Broker should possess knowledge on the needs of the client, market behaviour and
Political, Economic, Social & Technological factors.
This is the process of analyzing current and historical data to determine future trends. Stock
analysts use various forecasting methods to determine future stock price movements, earnings,
What are their fees?
All brokers charge the same commission for Equity trades. You will be charged 1.425% on your
transaction value for transactions upto Rs.1 Mn and 1.225% for transactions over Rs.1 Mn. Equity
trades above Rs. 100 Mn and all corporate debt trades have negotiable rates of broker
What research services are offered?
Most brokers have a research unit that studies the market in general and specific companies in
particular. With this research they are able to recommend shares for you to purchase. They
publish research in the form of
• Sector reports
• Daily & Weekly reports
• Company specific reports
• Daily valuation reports
The broker makes recommendations to the best of his ability and should not be liable in case the
recommendation is found to be incorrect.
If you have a complaint with regard to a broker, first inform the Compliance Officer of
your broker firm. The Compliance Officer should be able to help you and resolve the
complaint. If you are not satisfied you can forward your complaint to the CSE for
investigation. As a final step you can forward your complaint to the SEC who has
statutory authority to investigate complaints.
There are many brokers to choose from --given below is a list of all the stock brokering firms
licensed by the SEC.
Bartleet Mallory Stockbrokers (Pvt) Ltd Acuity Stockbrokers (Pvt) Ltd.
Level "G", "Bartleet House", 65, Braybrooke Place, Level 6, Acuity House,No. 53, Dharmapala
Colombo 2. Mawatha, Colombo 3.
Tel. 5220200, Fax: 2434985 Tel. 2206206
E-mail:email@example.com Fax: 2206298/9
Website: www.bartleetstock.com E-mail: firstname.lastname@example.org
Mr. R. Muralidaran Mr. Devapriya Ellepola
Managing Director CEO/Managing Director
John Keells Stockbrokers (Pvt) Ltd. Asha Phillip Securities Ltd.
130, Glennie Street, Colombo 2. Level 4, "Millennium House", 46/58, Navam
Tel. 2326003, 2338066/7, 2342066/7, 2446694/5, Mawatha, Colombo 2.
2439047/8, 4-710721-4 Tel. 2429100, Fax: 2429199
Fax: 2342068, 2326863 E-mail: email@example.com
Email:firstname.lastname@example.org Mr. Dimuthu Abeysekera
Mr. Tivanka Ratnayake
DP Global Securities (Pvt) Ltd. Somerville Stockbrokers (Pvt) Ltd.
3rd Floor, "Forbes & Walker Building", 46/38, 137, Vauxhall Street, Colombo 2.
Navam Mawatha, Colombo 2. Tel. 2329201-5, 2332827, 2338292-3
Tel 4700111, 2307366 Fax: 4700112,2307365 E- Fax: 2338291,
mail:Colombo.email@example.com E-Mail: firstname.lastname@example.org
Mr. Travis Waas Ms. Shalini Dias
Managing Director Director
J B Securities (Pvt) Ltd. Lanka Securities (Pvt) Ltd.
150, St. Joseph Street, Colombo 14. 5th Floor, 86, Galle Road, Colombo 3.
Tel. 2490900, 077-2490900, 077-2490901 Tel. 5576757, 2431138
Fax: 2430070, 2446085, 2447875 Fax: 5576767
Mr. Murtaza Jafferjee Website:www.lsl.lk
Chairman & Managing Director Mr.Kosala Gamage
Chief operating officer
Asia Securities (Pvt) Ltd. Ceylinco Stockbrokers (Pvt) Ltd.
Level 21, West Tower, World Trade Centre, Ceylinco House, Level 9, 69, Janadhipathi
Echelon Square, Colombo 1. Mawatha, Colombo 1.
Tel. 2423905, 5320000 Tel. 4-714300, 4-714388, 4-714389, 077-891871,
Fax: 2336018 077-896064
Email:email@example.com Fax: 2387228
Website:www.asiacapital.lk E-mail: firstname.lastname@example.org
Ms. Priyani Dharshani Ratna-Gopal Website: www.ecsbl.com
Chief Executive Officer Mr. Sriyan Gurusinghe
Capital TRUST Securities (Pvt) Ltd S C Securities (Pvt) Ltd.
42, Mohamed Macan Markar Mawatha, Colombo 2nd Floor, 55 D.R. Wijewardena Mawatha,
3. Tel. 5-335225, Colombo 10.
Fax: 5-365725 Tel. 4711000,
E-mail: email@example.com Fax: 2394405
Mr. Tushan Wickremasinghe E-mail:firstname.lastname@example.org
Managing Director Website:http://www.sampathsecurities.lk/
Mr. Harsha Fernando
Director / Chief Executive Officer
CT Smith Stockbrokers (Pvt) Ltd. DNH Financial (Pvt.) Limited.
4-14, Majestic City, 10, Station Road, Level 16, West Tower, World Trade Center,
Colombo 4. Colombo 01.
Tel. 2552290 – 4, Fax: 2552289 Tel. 5732222
E-mail: email@example.com Fax: 5736264
Website: www.ctsmith.lk E-mail: firstname.lastname@example.org
Mrs. Cecilia Muttukumaru Mr. Seedantha Kulatilake
Managing Director General Manager/CEO
NDB Stockbrokers (Pvt) Ltd. Capital Alliance Securities (Pvt) Ltd.
5th Floor, NDB Building, 40, Navam Mawatha, Level 5, "Millennium House", 46/58 Navam
Colombo 2. Mawatha, Colombo 2.
Tel. 2314170 to 2314178 Tel: 2317777
Fax: 2314180 Fax: 2317788
E-mail: email@example.com Email:firstname.lastname@example.org
Mrs.Prasansini Mendis Website:www.capitalalliance.lk
Acting Chief Executive Officer Mr.Ajith Fernando
SMB Securities (Pvt) Ltd. First Guardian Equities (Pvt) Ltd.
Landmark Bldg, 385 Galle Road, Colombo 3. 32nd Floor, East Tower, World Trade Centre,
Tel: 5539593 Fax: 5565316 Echelon Square, Colombo 1.
E-mail: email@example.com Tel: 5884400-5884411, 5884422-5884433Fax:
Website: www.smblk.com 5884401
Mr. Nandun Jayatillake E-mail: firstname.lastname@example.org
Chief Executive Officer Website: www.firstcapitalequities.com
Taprobane Securities (Pvt) Ltd. Amana Securities Ltd.
10, Gothami Road, Colombo 10. 550, R. A. de Mel Mawatha, Colombo 3.
Tel: 5328100 Fax: 5328109 Tel: 2506101-4 Fax: 2506105
E-mail: email@example.com, E-mail:firstname.lastname@example.org
email@example.com Website: www.asl.lk
Mr.Ashan Dassanayake Mr. Ishrat Rauff
Chief Executive Officer Chief Executive Officer
SKM Lanka Holdings (Pvt) Ltd
No.377/3, Galle Road Colombo 3
Tel: 0112372415/6 Fax: 0115371139
Mr. Khalil Masood
Reading Market Reports
As an Investor, you will begin to pay more interest to the business section of your local
newspaper. Most feature a section that deals with Stock Market prices at close of the previous
day. In this section, you will come across the following descriptions:
Stock Name Name of the particular stock.
Change (Rs) The increase or decrease in the stock price for that particular day.
Change (%) The percentage increase or decrease in the stock price.
High The highest price for a stock in that trading day.
Low The lowest price for a stock in that particular day.
M Cap(Market This is the total market value of all voting ordinary shares of all listed
Capitalisation) companies. This is also calculated company wise and indicates a company's
size in relation to the total Market .It is used to conduct market valuations.
Market capitalization is calculated by multiplying the issued quantity of
shares by the market price.
VWA price Closing price will be defined as the Volume Weighted Average Price (VWAP)
(Volume of trades executed during the last one hour of trading of the specific security.
Weighted If the security does not trade for one hour the closing price will be the VWAP
Average Price) calculated for the period of time it has traded After close of trading, no
activity can occur until the pre-opening begins on the next business day. The
option of having a closing auction is available but will not be enabled.
VWAP = total value traded during the last 1 Hour of trading
total volume traded during the last 1 Hour of trading
SECURITY X - TRADE RECORDS FOR DD/MM/YYYY
Time Price Volume Value
10.55 120.00 900 108,000
11.05 100.00 10,000 1,000,000
11.15 110.00 500 55,000
11.23 101.50 300 30,450
11.25 110.00 200 22,000
11.53 103.75 1,000 103,750
12.01 110.00 100 11,000
In the above example the first trade for security X for the day took place at 10.55 a.m.
The last trade for the day was executed at 12.01 p.m.
The VWAP for security X for day DD/MM/YYYY:
VWAP = TOTAL VALUE TRADED FROM 11.01 A.M.TO 12.01 P.M. = 1,222,200
TOTAL VOLUME TRADED FROM 11.01 A.M. TO 12.01 P.M. 12,100
SECURITY Y - TRADE RECORDS FOR DD/MM/YYYY
Time Price Volume Value
09.34 20.00 900 18,000
09.55 25.00 1,000 25,000
10.15 20.00 500 10,000
In the above example, Security Y has traded for less than one hour. The first trade for security Y
for the day took place at 9.34 a.m. The last trade in security Y took place at 10.15 a.m.
VWAP = TOTAL VALUE TRADED FROM 9.34 A.M. TO 10.15 A.M. = 53,000
TOTAL VOLUME TRADED FROM 9.34 A.M. TO 10.15 A.M. 2,400
= Rs. 22.00
Reading the stock market performance section of the newspaper is an easy thing to do. You just
need to do it a few times until you begin to feel comfortable with it.
Getting A Stock Price
The CSE website displays real time share price information in the home page under the tab
“Today’s share price List”
This table of real time data covers the above mentioned description pertaining to listed
companies opening, closing Day’s high, Day’s low & share price change information.
You will be able to obtain these information from your broker as well.
What is an Index?
An index is a statistical measure of change in an economy or a securities market. Each index has
its own calculation methodology and is usually expressed in terms of a change from a base value.
The CSE calculates indices on Price changes (ASPI, MPI & Sectors) and Total Returns (ASTRI,
MTRI & Sectors) on a daily basis.
What is a Price Index?
A market index is a method of measuring or tracking the price movements of a particular group
of financial securities. Such an index may be broad in scope (measuring a large group of stocks)
such as the ASPI or narrow (measuring only a selected group of stocks) such as the MPI & the
The CSE has two main price indices. These price indices are capital weighted.
Also it is known as “market-value weighted”
Individual components are weighted according to their market capitalization, so that larger
components carry a larger percentage weighting.
Large price moves in the largest components can have a dramatic effect on the value of the index.
Some investors feel that this overweighting toward the larger companies gives a distorted view of
the market, but the fact that the largest companies also have the largest shareholder bases makes
the case for having the higher relevancy in the index.
Importance of Market Indices
Market indices are important for two main reasons:
1. Indices as Benchmarks - Indices are frequently used as performance benchmarks or as a
point of reference by which the relative performance of a particular investment can
2. Determining Trading Trends - A stock market index acts as a proxy for the aggregate price
changes of the stocks, which make up that index and, as a result, measures the price direction
or volatility of the particular market.
By understanding how and why the indexes react in the economic trends over time, investors
might gain insight that will help them make better investment decisions.
All Share Price Index (ASPI)
The ASPI tracks the price fluctuations of all ordinary shares listed on the CSE. The ASPI was
introduced on 1 January 1985.
Milanka Price Index (MPI)
The MPI covers the price fluctuations of 25 selected companies. The 25 companies are selected
on their size (measured by market capitalization) and liquidity (measured by number of trades
executed & trading value as a % of average market capitalization).
The composition of the index is revised on a biannual basis.
The MPI gives a clear picture of the movements of the more liquid companies listed on the CSE.
The MPI is not a Blue Chip index.
The MPI was introduced on 1 January 1999, replacing the Sensitive Price Index (SPI), which was
the Blue Chip index of the CSE from 1 January 1985.
The CSE also calculates price indices for the 20 business sectors. They reflect the price
movements of companies in each sector.
What is a Total Returns Index?
Total returns include interest, capital gains, dividends and distributions realized over a given
period of time.
The Total Returns Index (TRI) calculated by the CSE takes into account price changes and
dividend income of companies listed.
This is hence a better measure of returns from an investor’s perspective.
The ASPI computed on total returns (ASTRI), MPI computed on total returns (MTRI) & the
sector indices are published daily along with the Price indices.
Types Of Stocks
What types of stocks are there?
Ordinary Stocks : When purchasing an ordinary stock, you own a share of the company. This
entitles you to receive profits from the operations of the company in the
form of dividends. At the annual general meeting (also referred to as an
AGM), you have voting rights. Ordinary stocks are what you will start to
trade in and most traders never venture beyond this.
There are, however, other types of securities and these are:
Preferential Stocks : A preference stock is different from an ordinary stock. Preference
stockholders receive dividends before dividends on ordinary stocks are
announced. If the company is wound up, preference stockholders rank
above ordinary stockholders in the distribution of assets. Preference stock
scan often have a fixed dividend rate.
Rights Issue : A rights issue can be granted to stockholders to buy stocks in the
company, often below market price.
Warrants : A certificate, usually issued along with a bond or preferred stock, entitling
the holder to buy a specific amount of securities at a specific price, usually
above the current market price at the time of issuance, for an extended
period, anywhere from a few years to forever. In the case that the price of
the security rises to above that of the warrant's exercise price, then the
investor can buy the security at the warrant's exercise price and resell it
for a profit. Otherwise, the warrant will simply expire or remain unused.
Warrants are listed on options exchanges and trade independently of the
security with which it was issued, also called subscription warrant.
Buying And Selling Stocks
The thought of buying and selling stocks can seem daunting for a beginner but it is quite simple
and will grow on you quite quickly once you have some practice. One essential thing to know is
that you must go through a broker to buy and sell stocks, only a licensed broker can deal directly
with the stock market.
Engaging a Broker
Aside from making the purchases, a broker can also advise you on your purchases. However, you
should not depend on them for market knowledge, you must do your own research to succeed in
Buying and Selling Online
Online trading does not come with expert advice but does normally come with live market
updates so you can keep track of your purchases online and become an expert yourself.
ACCOUNT BUYING MATCHING
You must open a CDS To buy shares, you Orders are matched
Account through a must have sufficient electronically through
stock-broking funds to cover the the Automated
company. cost of the shares as Trading System -
well as the there is no manual
transaction costs. intervention in the
Your CDS account will T-DAY
be credited with the CONFIRMATION
shares bought. All The day on which
payments must be on Your Investment shares are bought/
T+3. Advisor will confirm sold is known as T-
your order after it has day.
ADVISOR A contract note will
be sent to you by your
The main contact To sell shares, you stockbroking
person at the must already have the company. Confirm
stockbroking shares in your CDS that all details such as
company is your account. company name, cost
Investment Advisor of the shares and
transaction costs are
Your CDS account will correct and keep this
be debited and you document carefully.
will receive payments
When To Buy And Sell
The Exchange is open for continuous trading from Monday to Friday from 9.30 a.m. to
Secondary trading of corporate and government debt securities through the DEX takes
place from 9.30a.m. to 12.30p.m.
The trading sessions for equity as follows:
Market Phase Time Days
Pre-open 9:00 - 9:30
Open Auction 9:30
Monday - Friday (Except Public Holidays)
Normal Trading 9:30 - 14:30
During pre-open (9.00 am to 9.30 am) the system accepts orders. These orders can be
amended and cancelled during pre-open. However, no trades take place during this stage.
Orders during this period are held in the ATS and will be forwarded to the execution
engine at Open Auction time.
• Open Auction
During open-auction (09.30 am), the system temporarily closes the order book and starts
matching orders. It establishes the opening price and determines the orders to be
executed according to the rules for the open-auction period (Automated Trading Rule 4).
• Regular Trading
During regular trading (09.30 am to 2.30 pm) new orders are continually matched to
existing orders in the order book. If an order cannot be executed, it is stored in the order
• Market Close
Market closes at 2.30 pm.
There are two ways to place a buy or sell order:
At Market Orders
You can only make ‘at market’ orders during trading hours. you can put an order through your
broker as soon as the market opens, the purchase will then be made ‘At Market’ price,.
At Limit Orders
The advantage of ‘At Limit’ orders is that you set the maximum price you will buy or the
minimum price you will sell the share for. So, if you have done your research that evening and
decided that the most you want to pay for the share is Rs 120 then you place an ‘At Limit’ order
for 100 shares at Rs. 120. If your broker can get the shares for Rs. 120 they will buy them for you. If
not, they won’t make the trade. This practice is quite good if you want to control the amount you
For Further clarification, please contact the Business
Development Division of the CSE.
Colombo Stock Exchange
Business Development Division
04-01, West Block
World Trade Centre
Tel: 2446581, Fax: 2445279