Muted earnings season expected to get underway this week

• Investors and analysts will parse earning reports to see how companies fared amid soaring inflation and interest rates 

Investors and analyst are bracing for an extremely muted earnings season when listed companies start reporting their September quarter financial performance this week which will show how they have fared during the most difficult three months since the economy precipitated into a prolonged recession.
Although the earnings in the June quarter still grew at a robust 120 percent from the same period in 2021, the September quarter would show the pains the companies were undergoing with both their top and bottomlines feeling the impact, although there could be some exceptions among companies which are exposed to exports, consumer staples, retail and healthcare. 

Despite the solid year-over-year growth reported in the June quarter, earnings were beginning to show cracks as the cumulative earnings measured on a quarter-on-quarter basis slipped 2 percent from the three months through March. 
Banks which typically lead the corporate earnings are widely expected to falter due to rising credit costs and contractions seen in their balance sheets as interest rates reached restrictive territory for new borrowers while nudging weaker borrowers into default.

However, the higher margins may have provided some respite to earnings although if that could be higher enough to support the bottomlines remains questionable. 
Private sector credit fell for the fourth consecutive month through August, providing a forerunner for what may have happened to bank balance sheets growth during the quarter.
Meanwhile, when it comes to companies representing other sectors, the analysis would assess the extent to which inflation, higher rates and taxes have affected their toplines as both businesses and households have pulled back their spending at the highest pace Sri Lanka has ever seen.
They would also look at how margins have been affected by the cost inflation as companies could not fully pass down their costs as they did until recently without a corresponding impact on their toplines as consumers remain weaker. 

Sri Lanka’s inflation flirted with 70 percent in September and people are getting less though they spend more at stores. They have significantly altered their buying habits and many have limited their purchases to food items and a few other essential consumer goods. 
Analysts would also parse how the soaring interest rates have weighed on companies’ bottomlines as many companies took on large debt in the two years of the pandemic when the rates were historically low and they have now reversed course sharply, causing higher outlays for their debt servicing.