Asia Securities joined the chorus of forecasting an excellent ride for Sri Lankan equities in 2021, powered by robust earnings supported by lower interest rates, domestic manufacturing policy tilt and the rejuvenated hopes for policy and political stability.
In an equities report on the outlook for Sri Lankan equities for 2021, the Colombo-based stockbroker projected that the above trifecta would help push the benchmark All Share Price Index (ASPI) of the Colombo Stock Exchange to 7,400 to 7,600 levels.
The ASPI had its fastest bull run in 2020 since 2014, as the broad index logged a 10.5 percent increase in 2020 and recorded the twelfth double-digit percentage advance in the CSE’s 35-year history. This was all amid a pandemic, which rocked the businesses and pushed the overall economy to its worst performance.
Last week, First Capital Research came up with a similar forecast, projecting the ASPI to reach 7,000-7,500 levels this year, indicating a forward price-to-earnings ratio of 14-14.5 times of the 2021 earnings.
Meanwhile, Asia Securities identified a number of sectors, which they referred to as ‘COVID recovery’ stocks in 2021, as such industries and individual stocks could benefit from the dissipation of the virus scare and reopening of economies for normal or near normal activity. Asia Securities identified banks to lead the pack as they would be the first to benefit from the economic recovery from the faster growth expected in private sector credit and the lower corporate tax.
The brokerage also expects the insurance sector to perform better from the low interest rates and insurance tax deductible allowance of Rs.1.2 million per annum, as there are strong incentives for life insurance demand to pick up in 2021, albeit the general insurance could remain challenged from the temporary ban on personal vehicle imports.
Other sectors, which could be better placed to benefit according to Asia Securities are telecommunications, conglomerates, fast-moving consumer goods, construction, manufacturing, alcoholic beverages, healthcare, leisure and energy.