Sri Lanka’s stocks are trading at an attractive platform competitively with peer frontier markets with market valuations suggesting that the Sri Lankan stocks trade at Price Earnings Ratio (PER) at 10.4 times for FY13E earnings while trading at 9.0 times FY14E earnings, a recent research report stated. According to Softlogic Equity Research, ignoring the fearful local investors, foreign investors are bullish on the Colombo Bourse with further accelerated accumulation following the September quarter results.
“The Year To Date (YTD) foreign inflow has rushed to almost Rs. 37bn. Selling pressure in the market has drastically declined with almost negligible selling from foreigners. We believe December quarter results which are likely to be strong could be the next trigger for the CSE to record stronger buying interest leading to a rally on fundamentally strong counters. We re-iterate to our investors to pick stocks based on their long term value,” the report pointed out.
It further noted that for the September 2012 quarter up to the 3rd Dec 2012 where 272 companies had released their results, they had signaled a strong recovery in the market earnings with Quarter on Quarter basis earnings growing by 33% although market earnings for the month of September was marginally down by 6%.
“The September quarter earnings performance of the companies, were in line with our expectation of a gradual recovery of the market which was expected to bottom out by June 2012. In the June quarter Year on Year earnings were down as much as 12% for 236 companies which released results. During the September 2012 quarter the dip in earnings was as low as 6%,” the report analysed.
It added that stability in the exchange rate and interest rates coupled with the improving economic and business outlook has brought this turnaround.
“Towards the current December 2012 quarter and March 2013 quarter we expect a complete recovery and further acceleration in market earnings which may lead to a YoY growth in earnings in the said quarters,” as stated in the Softlogic Equity Research report.