• Current market size limits EPF investment to avoid overheating
• SOE listings and diversification crucial for better returns and market growth

Sri Lanka’s stock market needs to be more diversified with more companies listed including state-owned enterprises (SOEs) for the Employee Provident Fund (EPF) to invest over 1% without overheating the market, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe said.

Speaking at the Invest Sri Lanka forum yesterday (27), he said that the Central Bank doesn’t have options to invest 95% of the EPF and that it can only invest in government securities.

“If the fiscal consolidation path is going forward, I don't think EPF will have a challenge to invest savings of the private sector in the biggest and largest fund in Sri Lanka in equities,” he said.

By end of September 2024, EPF had invested Rs. 88.6 billion in equities which has a total market value of Rs. 109.6 billion.

He added that if the EPF invests 1% of its funds in the stock market, there will be an overheating of the market considering the current size of the stock market.

“So we need many diversified companies listed including SOEs, which will give opportunity for investor funds such as the EPF,” he added.

According to him, such investment will provide opportunities for the market and to the savings of the private sector to get them better returns.

He also added that banks and the government are limited in their investments to the stock market with banks using their deposit liabilities and the government with limited fiscal space.