Listed corporate earnings record 38.3 % YoY Rs. 118.5 bn growth in 1-Q 2024

The completion of debt restructuring paves way for Sri Lanka to come out of its default status and reinstate confidence among foreign investors, states First Capital Research in their “Equities ready for lift off…” report compiled in July 2024.

Having completed domestic debt restructuring in September 2023 and bilateral debt restructuring in December 2023, Sri Lanka initiated commercial creditor discussions in April 2024 and achieved a timely completion in July 2024.

“Moreover, this also lifts the overhanging uncertainty regarding the equity investments and is expected to increase participation in the financial markets in the coming months.” The report also says that there is some uncertainty on the holding of the elections and an announcement of dates will clear the lingering uncertainty and offer investors clear direction on the upcoming key events to the Sri Lankan economy.

First Capital Research (FCR) remains BULLISH on equities despite the continuous uncertainties centered on the elections and the delay in external debt restructuring.

“We continue to believe that the catalysts for stronger returns outweigh the risk, as we advise investors to remain fully invested.

“Having set a target of 13,500 for ASPI for 2024, the market moved up in line with our expectations during the Jan-May 2024 period gaining 17.5%. However, significant delay in the IMF 3rd tranche amidst the extensive time taken for external debt restructuring negotiations, created an uncertain environment causing ASPI to dip 4.7% between May 10 to July 9 period.”

“ASPI has declined by 4.7% since our last update on April 30, 2024 largely due to the delay in finalizing the IMF 3rd tranche & External Debt Restructuring,” First Capital added.

Despite the marginal drop in ASPI, listed corporate earnings illustrated a significant recovery and recorded a growth 38.3 %YoY to LKR 118.5Bn in 1 Q 2024.

“Listed corporate earnings, which bottomed out in 3Q2023 amidst shortages and higher interest rates, recovered and displayed significant growth during past three quarters Consumer spending picks up as Sri Lanka continue to progress along the IMF agreement, whilst upcoming elections can trigger government spending, further boosting sentiment in the coming months”

“FCR expects market earnings to grow by 41.7% YoY in 2024E, whilst 2025E earnings is expected grow by 16.5%YoY”

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