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Thursday Dec 12, 2024
Tuesday, 3 September 2013 00:00 - - {{hitsCtrl.values.hits}}
In an Earnings Update, NDBS said combined profit levels of the 95 companies increased to Rs. 43.75 billion from Rs. 40.44 billion.
“On a recurring basis, profits of the sample set of companies increased by 7%. Therefore, we maintain our overall profit growth forecast of 10% for FY13/14,” NDBS said.
It said food, beverage and tobacco, healthcare, manufacturing and telecommunication sectors managed to record a growth in profits. On the other hand, sectors such as construction, diversified, hotels and travels, motor and plantations experienced a dip in earnings.
“The market sentiment has been weak in the recent past with the absence of retail investors along with the slowdown in economic activity. Despite the reduction in deposits rates by 300 bps since May, the lending rates have declined only by around 100-200 bps. Therefore, we believe the broader economy has not experienced the reduction in interest rates yet,” NDBS noted.
It expects the Central Bank to direct the commercial banks to reduce the lending rates further by 100-200 bps, which would revive activity and sentiment towards equities.
NDBS also said the investor sentiment towards global emerging markets and Asian markets has deteriorated over the past few months along with the expectation of a tapering of the QE program in the USA.
“We note that the Sri Lankan currency has performed appreciably better than a number of currencies in emerging markets. However, Sri Lankan financial markets will also continue to get affected if the negative sentiment continues,” the broking firm said.
While it does not downgrade projections with respect to the equity market return estimated up to 2014, NDBS has a negative outlook based because of the factors explained. “A downgrade may materialise if the environment does not improve in due course,” it added.
Nevertheless, NDBS said the market overall was still attractively priced in comparison to other regional markets. “The banking sector valuations continue to be attractive considering the respectable earnings growth. Despite profits remaining subdued during the period due to macro factors, selected counters in the construction/manufacturing, diversified and power sectors remain attractive in the medium term,” NDBS added.
