June quarter earnings season to kick off in earnest with a bang

• Analysts expect June quarter earnings to come in stronger than both from a year-on-year level as well as from a quarter-on-quarter level
• June quarter earnings likely to see the bump in earnings from lower borrowing costs, higher top-lines

The stock market’s performance has been lackluster in recent weeks. However, the upcoming corporate earnings reports, starting this week, could significantly impact investor sentiment, especially with the uncertainty surrounding the upcoming Presidential election.

In the first quarter of this calendar year, the listed companies delivered some robust earnings with cumulative after tax profits of Rs.118.5 billion, up 56 percent from the same period last year but down 29 percent from the December quarter of last year.

Analysts expect the June quarter earnings to come in stronger than both from a year-on-year level as well as from a quarter-on-quarter level, given the pickup in consumer spending as well as the overall economic activities.
All economic readings such as Purchasing Managers’ Index, industrial production and inflation have been helpful for both the consumer and the businesses in the foregoing quarter.

The June quarter earnings are likely to see the bump in earnings from lower borrowing costs, higher top-lines, possible from the recovering consumer spending and the mild costs possible from benign inflation.
June could be the first full quarter in which the companies would be able to see the full effects of the lower borrowing costs.

The prime lending rates fell further last week to 8.85 percent, bringing further down the cost of accessing bank borrowings by most of the larger corporates.
Consumer discretionary construction and leisure sectors could mount considerable earnings growths in the June quarter followed by staples 
and banking.

Despite the off season softening seen in the April – June period, tourism industry has been on a steady growth from both foreign and local travellers and revellers.  
The long holidays mostly seen during the past quarter kept the hotels and resorts near full while people chose dining out more often than before, keeping the restaurants and food and beverage industry humming.  

Therefore the analysts expect the coming earnings to provide the next reason for investors to own equities before the next catalyst from the Presidential election slated for around October.
Sri Lanka’s stocks were down 0.9 percent last week but up 11.2 percent for the year.
And both the government securities yields and the borrowing rates came down quite sharply last week, providing another impetus to equities.

The International Monetary Fund (IMF) programme and higher taxes are impacting equities in Sri Lanka. A Presidential candidate promising tax cuts and ending the IMF programme might attract significant voter support in the upcoming election, potentially boosting the market.