"The recent high oversubscriptions of new issues show the liquidity that is available. Now that the war is over there is a lot of hope and good sentiment. Without the war risk premium valuations can be higher."

Kulatilake says he is now working on 3.0 billion rupees (26 million US dollars) of deals of which about 2.0 billion rupees may come to the market this year.

NDB Investment bank is taking PC House, an information technology firm public on August 05, to raise 630 million rupees.

High Hopes

Earlier this month Odel, a fashion retailer, had its initial public offering oversubscribed by 63 times.

A 30-year ethnic war in Sri Lanka ended in May 2009, raising hopes of peace and economic growth.

In the decades before the war intensified in the 1980s the country been bogged down by deficit spending rulers that nationalized local and foreign investors' property, created state monopolies and printed money causing high inflation and balance of payments trouble.

Meanwhile counterparts in East Asia raced ahead.

Sri Lanka has upped spending on infrastructure in recent years and monetary policy has improved. Lavish spending has for the moment been put under check by an International Monetary Fund deal.

If state spending can be restrained there is increasing hope that interest rates will stay low allowing people to borrow and spend their savings.

If the central bank is able to resist pressure from the state to print money to finance its deficits there is hope that inflation will remain low and people will be able to climb out of poverty amid stable economic conditions.

Entrepreneurs

Mangala Boyagoda, a director of PC House and a capital market consultant, says it took two years to ready PC House to the point of gaining a stock market listing.

The firm was founded by Shaheedul Rishan, a sailor turned entrepreneur in 1997 with a single showroom and now has revenues of 3.0 billion rupees a year.

Boyagoda re-structured the group bringing IT-related firms under one entity and selling out non-related businesses.

He believes Sri Lanka's capital markets are just beginning to bloom after 30 years of war.

"The market capitalizations of other emerging markets are more than 100 percent of gross domestic product," Boyagoda says.

"In Sri Lanka it is about 30 percent still. We have to encourage entrepreneurs to come to the market. If they are willing to change and improve corporate governance and improve transparency they can get a listing.

"When your transparency increases its easier to grow and win business outside the country from multinationals.

Pricing

Sri Lanka's stocks are now worth 1,590 billion rupees or 14.1 billion US dollars, up from 1,093 billion at the beginning of the year. The market price to earnings multiple is 20.3 times on historical earnings.

PC House is being priced at around 10 times forward earnings on a fully diluted basis.

So far in 2010 five IPOs have taken place and many listed firms have issued new shares to raise capital. Last year three firms went public, though rights issues by listed firms to raise capital picked up in the second half.

LR Global, a New York-based fund opened its Colombo office Wednesday. The head of its local unit Channa de Silva says the firm is "keenly interested" in buying into unlisted firms "which have potential to list and eventually bringing them onto the stock market."

Kulatilake says he is working on firms in finance, power, engineering agriculture and food and beverages.