Sri Lanka rupee weakness, higher interest rates to slow company earnings growth

ECONOMYNEXT – Sri Lankan corporate earnings will maintain double-digit growth in the next few quarters but will then be slowed by the weakening of the rupee and a rise in interest rates, a new report said.

But currency depreciation could also help certain sectors on the Colombo bourse such as tourism, plantations and export manufacturing, First Capital Equities said.

“We expect credit growth and consumption demand to continue up until a heavy rupee depreciation and an interest rate (rise) which is gradually taking place,” the brokerage said in a results update.

But it also noted that the significantly high consumption demand taking place is “adversely affecting the balance of payments” as a result of heavy imports.

“In addition to the Banking and Finance, Food & Beverage, Manufacturing and Trading sectors which are positively benefited by the credit growth and consumption demand, we expect the currency depreciation to positively benefit hotels, plantation and selected manufacturing sector exporters.”

First Capital Equities said that amid the latest developments they maintain their market earnings forecast for the December 2015 and March 2016 quarters at 11-13 percent year-on-year.

“The positive market returns are likely to continue with settling of the political and policy uncertainty,” the report said.

“We expect a slowdown in economic conditions beyond June 2016 resultant (with the) likely rise in interest rates affecting companies across the board.

“As a result we expect market earnings to slowdown for the earnings period December 2016E / March 2017E resulting in an earnings forecast of 4-5 percent year-on-year.”  (Colombo/August 25 2015)

 

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