Slowness in economy will affect company earnings
View(s):The slowness in Sri Lanka’s economy will continue to partially affect company earnings amidst lower consumer demand, in the coming months. However banking earnings are likely to rebound with the currency depreciation leading to exchange gains, analysts say.
“Telecom, Food and Beverage and Trading sector earnings are likely to be adversely affected with the currency depreciation while most companies with foreign debt are expected to record exchange losses,” a Softlogic Equity Research report said. It added that the diversified sector is likely to benefit amidst dollar income and overseas investments. “The overall market earnings are likely to show a slow and gradual recovery with consumer demand for manufacturing and bank credit likely to record a gradual uptrend,” it said. It added that amidst challenges in the economy, expected rise in interest rates and negative market sentiment, market returns are likely to be marginal in the short term and may show an uptrend towards medium to long term.
Market earnings encountered a marginal growth up of 3 per cent year on year while it dipped 33 per cent quarter on quarter, the report said, analysing 274 companies that have released June quarter results. Power and Energy, Investment Trusts and Trading sectors underscored earnings growth amidst dormant performance in Banking and Finance and Diversified sectors. The report said that Banking and Finance sector earnings saw a 7 per cent year on year dip which weighed down overall market earnings performance primarily reasoned by pawning provisions and lower exchange gains. Diversified sector earnings traced a similar performance to the March quarter as earnings remained broadly flat with a large percentage of its contribution stemming from key large players.
The Power and Energy sector spearheaded market earnings with 487 per cent year on year growth. Energy sector earnings were backed by the bearish trend in oil prices (reflecting a 4 per cent year on year dip up to June 2013) resulting in higher margins for petroleum products while improved rainfall drove earnings growth of hydro power companies. Investment Trusts sector earnings grew 397 per cent reasoned by positive momentum in market movement during 2Q2013 largely backed by gains in blue-chip counters. Trading sector earnings improved 344 per cent year on year driven by the 3.3 per cent year on year rupee appreciation during the said period coinciding with the peak season for imports.
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