SL corporate earnings growth slows down in 4Q

Sri Lanka’s listed company earnings growth slowed substantially during the quarter ended in December 31, 2016 (4Q16), in comparison to the previous quarter’s earnings growth, an analysis by an independent research house showed. 
Listed companies recorded total earnings of Rs.62.3 billion for its October-December quarter, an increase of 8.1 percent over the same period in 2015. 
But this was markedly lower from 25.4 percent growth in earnings during July - September quarter which had total earnings of Rs.57.4 billion, a quarterly earnings update by CAL Research, the research arm of the Capital Alliance 
group showed. 
According to analysts, July-September was the peak season for earnings for the Colombo Stock Exchange listed entities, and the October-December results reflect the challenges ahead for the businesses amid tighter fiscal and 
monetary conditions. 
Banking, Finance and Insurance (BFI) sector led the earnings as usual due to higher net interest incomes supported by stronger demand for credit prevailed during 2016. 
But the repetition of this phenomenon in 2017 is an uphill battle on the back of higher interest rates and tighter credit conditions, which are likely to get further rigorous and binding. 
The International Monetary Fund last week flagged multiple economic perils ahead amid mounting external debt and asked the Central Bank to remain vigilant to further tighten the monetary policy unless the credit and inflation show signs of abating.
The BFI sector reported 4Q16 earnings of Rs.29.2 billion, up 11.9 percent Year-on-Year (YoY).
The sector earnings was driven by private sector commercial banks’ earnings of Rs.15.2 billion, up 20 percent YoY, finance and leasing companies earnings of Rs.8.4 billion, down 9.0 percent YoY and insurance sector total earnings of Rs.5.7 billion, up 34 percent YoY. 
Banking sector earnings is a closer indication of the direction of the rest of the market earnings and of the economy as the sector earnings contributed 47 percent of the total market earnings. 
The other main sector–wise contributors to the 4Q16 earnings were diversified holdings with 18 percent share and beverage, food and tobacco with 11 percent share. 

The largest individual contributors to the 4Q16 earnings were John Keells Holdings with 8.3 percent share, Commercial Bank of Ceylon with 6.9 percent share and Hatton National Bank with 6.5 percent share. 
Since 2015, year after year, Sri Lanka’s stock market indices have come down and the capital market participants attribute this to the lack of confidence in the economy and the ad-hoc policies by the government. 
The investors may have priced in the weaker future earnings of the listed entities also as a result of lower disposable incomes of the people.  
Meanwhile, for the year ended December 31, 2016, the total market earnings grew by 10.8 percent to Rs.225 billion. 
Due to lower valuations, the CSE is currently experiencing some foreign investor appetite. But local investors are seen largely staying away from the market probably due to the bad experience they had during 2010 – 2011 market rally.