Sri Lanka stocks seen fairly priced, rising rates a concern

ECONOMYNEXT – Sri Lankan stocks are attractive investments with the government moving to put the economy back on track with International Monetary Fund support although rising interest rates might deter investors, a new stock broker research report said.

“Market multiples have significantly contracted, (and) quality counters that were trading at rich valuations have corrected offering quality at a fair price,” JB Securities said. “Value investors can find attractively priced blue chip counters.”

The stockbrokers said that they believe that the IMF support facility will likely result in more fiscal discipline this year while making policy more predictable.

“This is likely to stabilize risk sentiment which can support foreign institutional investor inflows in the second half of 2016,” the report said.

However, JB Securities said rising interest rates make equities an unattractive asset class.

“At the margin most retails investors will select fixed income instruments than equities to invest in.”

The report noted that investor sentiment will be dented in the short term by the government announcement if its intention to impose a capital gains tax.

Rising nominal interest rates are more propitious for large commercial banks with a wide retail franchise, the report also said.

“Profitability will increase on the back of rising Net Interest Margins.”

(COLOMBO, June 21, 2016)
 

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