Sri Lanka corporate earnings seen growing on lower costs

EconomyNext – Sri Lankan companies should continue to do better this year given fuel and electricity price reductions and fall in interest rates, the latter almost matching the growth in the benchmark equities index in 2014, stockbrokers said.

"Corporate earnings denote strong growth potential amidst the favourable economic environment," Softlogic Stockbrokers said in a research note on the outlook for firms listed on Sri Lanka’s stock market for 2015.

The easing of interest rates and improving external sector performance coupled with reductions in fuel and electricity pricing witnessed during the second half of 2014 are likely to support an improved performance by listed corporates in 2015, they said.

The Colombo bourse is trading at an overall market PE (price: earnings ratio) of 14.9x the last four quarterly earnings.

The Colombo Stock Exchange (CSE) has 294 companies representing 20 business sectors with a market capitalization of 3,104.86 billion rupees as at 31st December 2014.

Stockbrokers Lanka Securities said the benchmark All Share Price Index rose 1,386.17 points or 23.4 percent in 2014, almost matching the fall in interest rates.

The S&P SL20 index, which tracks the top 20 largest and most liquid stocks on the CSE, gained 825.27 points or 25.3 percent during 2014, the best performance since 2010.

Lanka Securities said the reduction in interest rates favourably affected the equity market in 2014 as the Central Bank of Sri Lanka eased the Treasury bill yields "significantly". 

The three-month yield dropped by 168 bps or 22.6 percent while 6-month yield and the 12-month T-bill yield dropped by 169 bps (22.4 percent) and 194 bps (24.4 percent) respectively, Lanka Securities said.

"The low interest rates encouraged the investors to shift their investments from fixed income securities and deposits to equities, which resulted in bullish momentum in 2014," the report said.





It said 86 stocks reported gains of more than 50 percent while 87 stocks were up between 20-50 percent in 2014 and prices of 70 stocks rose up to 20 percent. 

The share price of one company declined by more than 50 percent in 2014 while 51 companies reported a drop in share price of between 20-50 percent.


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