COLOMBO (EconomyNext) – Year-end earnings forecasts for listed Sri Lankan companies have been raised by a stock broker, given rising disposable incomes and lower costs of energy and other consumer goods.
Consumer demand is likely to remain strong benefiting banking, manufacturing and food and beverage sectors, First Capital Equities said in a research note.
"We upgrade our earnings forecast for December 2014 and March 2015E to 10-12 percent from the previous 6-7 percent," it said.
The new government’s interim budget in January sharply lowered taxes on a range of goods, reducing prices of energy and transport as well as food, although there were one-off corporate tax hikes.
First Capital said earnings continuing to remain above expectations predominantly led by heavy trading income in the banking sector and consumer-led earnings growth coming in earlier than anticipated.
"We continue to remain bullish on consumer led earnings growth which is likely to drive market earnings in December 2015E / March 2016E to reach our forecast of 11-13 percent."
The brokerage said stock market returns suffered during the last two quarters amid political uncertainty.
Investors are worried over the stability of the new coalition government and looming general elections after April.
First Capital Equities said that despite healthy earnings growth in most companies, the gap between the market returns index and market earnings index has been widening.
"We are bullish on market returns during the 2H2015 when the policy direction becomes clearer and the political uncertainty settles down," they said.
Market earnings in December quarter were led by banking and manufacturing sectors resulting from the growing consumer demand.
"Consumer demand which picked up during 4Q2014 is likely to boom during 2015 due to further increase in disposable income deriving from favourable interim budget proposals which came in January," the report said.
"We believe core-earnings of banking, manufacturing and food and beverage sectors shall drive earnings during the next few quarters while the finance sector becomes the new entrant to the list."
December quarter earnings in the banking sector continued its growth momentum with total profits of 23 billion rupees, up 35 percent from the year before.
"This was mainly driven by the pick up in private sector loan growth during the December quarter amidst margin expansion," First Capital Equities said.