Investors need to have better focus

Sanjeevi Jayasuriya

The capital market investors need to have a better focus on their investment options to gain real returns.

It is important to consider the fundamental macro and micro settings in selecting stocks to invest. The industry structure, the competitive advantage and the financial ability of the business which measured across operating and balance sheet metrics, to capitalize on these trends is the critical combination for a successful company, Heraymila Securities Limited (HSL) Chief Executive Officer Ravi Abeysuriya told Daily News Business.

A good company is not necessarily a good investment. The market price relative to valuation is a key indicator of potential loss or gain. It is important to assess valuation against key ratios such as PE, EV/EBITDA, P/NTA, and free cash flow yield when selecting stocks.

"We have initiated a unique recommendation framework that brings together our bottom-up and top-down views. We rate each company against 18 specific variables split in to four categories. This will give the investor a general idea on the selection criteria," he said.

The four categories that are included in the ratings are fundamental, valuation, return momentum and subjective assessment of soft fundamentals, he said.

"The momentum investing can be rewarding, but the empirical evidence is mixed. We believe returns momentum subject to fundamental drivers can provide useful indication for market demand and earnings outlook," he said.

"More generally we recommend companies that have valuation support, operating in growing industries, have growth opportunities, execution capability is high and corporate governance is sound. We are favourably disposed to companies exposed to revitalization of the post-war North and the East construction and rising household spending. Most other companies suffer from lack of valuation support, poor industry structure or execution risk," Abeysuriya said.