Sri Lanka large caps still undervalued, consumer goods has potential: Asia Securities

Asia Securities Head of Research Kavinda Perera

ECONOMYNEXT- A rally is Sri Lanka’s stock market in the second half of 2019 has pushed up construction, manufacturing and telecom sectors but, large caps and consumer goods firms, have room to grow, Asia Securities a brokerage said.

“The market rally that took place since May 2019 up to now, some of the sectors that contributed were construction, manufacturing, leisure and telecom; sectors which had a lot of downside over the past two years,” Research Head Kavinda Perera said at an Asia Securities investment forum in Colombo.

“Some of the large cap sectors like banks and conglomerates, are yet to see a significant rerating,” he said.

“This is one of the reasons why we think that the current bull run has a bit more room to run, because the large sectors will start to contribute.”

The main All Share Price Index at the Colombo Stock Exchange fell to a 7-year low of 5,199 by May 15 following the Easter Sunday bombings, to 6,215 on December 02.

Signing of a revised reform program with the International Monetary Fund, the country’s largest fund, the Employees’ Provident Fund re-entering the market with large purchases and the start of an election cycle contributed to gains.

However foreign investors have so far not returned to the market and some have been selling steadily.

Foreign funds will play a key part in the market confidence going forward, Perera said.

With the government fiscal stimulus targeting higher consumer discretionary funds, consumer goods and retail sectors have significant upside, he said.

Government tax reforms have also helped construction sector to repay bad loans that revives the repayment cycle again, he said.

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“The construction sector that was under a lot of stress created a lot of issues for the bank’s recovering slightly in the next year, we can expect the repayment cycles start coming through again.”

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Economists and analysts have raised concerns about the tax cuts and whether fiscal stimulus will be monetarily accommodated with rates cuts and liquidity injections which may lead to instability unless carefully managed. (Colombo/ Dec18/ 2019)

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