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Market to rebound in 2H, ASI to hit 9,000

24 June 2013 03:21 am - 0     - {{hitsCtrl.values.hits}}

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A host of positive factors ranging from healthy corporate earnings to lower interest rates and return of funds to long term investments will enable Sri Lanka’s capital market to bounce back strongly in the second half (2H) of this year, an equities report by a local brokerage said.

According to NDB Stockbrokers, this momentum will be followed by a bull run during 2014, supported by further slashing of interest rates which could possibly occur either in late 2013 or early 2014.

Given this optimism revolving around Sri Lankan equities, NDB Stockbrokers even went on to project the All Share Price Index to reach 9,000 points by the end of 2014, from the current 6,300.

The report however pointed out that the rebound would be followed by a correction in the share prices as the appreciation in the equities, which gained by 28 percent from mid 2012 to end of May 2013 was slightly ahead of their previous expectations.

Therefore, the brokerage expects a lower rate of appreciation of stock prices in 2H13 compared to 1H13, during the period in which stock prices gained by 13 percent.

Nevertheless the brokering firm expects a modest increase in corporate profits by 10-15 percent for 2013 followed by a robust 20 percent growth in profits in 2014, backed by the pickup in economic activities and lower interest rates.

Based on the analysis of 83 stocks, the aggregate profit in 2012 has only increased by 12 percent, a drastic reduction from 124 percent and 17 percent recorded in 2010 and 2011, due to the slowdown in economic activity.

Meanwhile, NDB Stockbrokers also noted the shift in the investor profiles during the last two years and recognized the entry and the active participation of foreign investors since early 2012 as a positive aspect.

They noted that the exit of local investors followed by the market correction in 2011 and high interest regime in 2012 paved the way for more foreign investors with a long term view to enter the market.

“Therefore, we feel there is significant upside potential for Sri Lanka equities,” the brokerage said.

The Colombo bourse has received a net foreign inflow of Rs.16.2 billion to date while the figure for year 2012 stood at Rs.38.6 billion, up from Rs.19 billion in 2011.

The report further showed that although Sri Lankan equities are attractively priced compared to regional equity markets and are trading at a forward P/E of 12x given the growth expectations over the next 2-3 years, the market has significantly underperformed both regionally and among developed markets since early 2012.
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