First Capital expects improvement in corporate earnings towards 4Q19

The sharp decline in interest rates and resultant lower finance costs is likely to improve the earnings of listed corproates towards 4Q19 amid faster than expected recovery in the country’s economic outlook and lower rates, according to First Capital Research.

“The heavy decline in interest rates is expected to lower finance costs, thereby improving earnings of most listed entities towards 4Q19. 

“In addition, lower Fixed Income returns may lead investors to hunt for alternative investment options with higher returns, of which equity investments is likely to be a more probable option considering the current attractive valuations. 

“Thereby we expect an improvement in demand for stocks leading to a possible re-rating of the market,” First Capital Research said in a report yesterday. 

The equity research house also said despite the Easter Sunday attacks, Sri Lanka’s economic outlook has shown signs of resilience and ability recover quickly as economic activities were seen returning to normalcy with the removal of travel advisories faster than anticipated.

“Though the unfortunate attacks and the subsequent events are likely to have impacted all sectors directly or indirectly affecting earnings of most companies, we believe that the impact has now been factored into the market and an accelerated recovery is more likely.” 

Meanwhile, First Capital Research said the successful and early issuance of the US $ 2.0 billion sovereign bond by the Central Bank was a major confidence booster. The issue was oversubscribed three times.

“While most economic indicators such as inflation, credit growth and liquidity suggest decline in yields, strong reserve position supports sustainability of the lower yields. 

“In line with expectations bank 1-year fixed deposit ceiling has fallen to 9.83 percent as of 1st July 2019,” First Capital Research said.