Despite the temporary lockdown in early October 2020, business activity is expected to continue its upward trajectory amid the lower interest rates prevailing in the market according to First Capital Research.
 With the steep spike in 3Q- 2020 earnings, market earnings recover faster than anticipated. |
“We expect credit growth to gradually improve activating consumer demand in the market. We have upgraded our 2020E earnings amid the stronger than expected recovery has automatically pushed our earnings expectations for 2021E as well.”
Supported by the strong earnings growth especially in 1H-2021, we expect the ASPI to provide a market return of c.11% to reach a range of 7,000-7,500 indicating forward PER of 14.0x-14.5x 2021E earnings. However, a possible steep depreciation in the currency may dampen sentiment from 2Q-2021 onward. It is likely to have an adverse impact on banking rates towards 2H-2021 with a potential increase in banking rates by about 200bps during 2H-2021.
With the improved earnings outlook, we upgrade overall earnings expectations for 2020E improving to -16% on the back of stronger than expected outlook. Nevertheless, earnings growth expectations are maintained at +19% for 2021E. Despite growth for 2021E being similar with an upgrade of 2020E earnings absolute earnings for 2021E improves closer towards 2019 indicating strong recovery for companies.
The current period of lower yields in Fixed Income has become a major deterrent for investors to reinvest in Fixed Income related instruments.
Thereby, most investors are on the lookout for alternative investment products. In Sri Lanka, the primary alternatives available are investments in equity and real estate while unit trusts are also slowly gaining popularity.
