CSE performance positive for 2014 with low interest rates
Colombo’s share market is likely to go through a boom this year mainly owing to low interest rates, analysts say.
“The Colombo Stock Exchange (CSE) will be bullish this year with the interest rates down and the general indications are that it will be better than last year,” Deshan Pushparajah, Head of Investment Banking, Capital Alliance told the Business Times. He said foreign purchases are constant and this trend will continue.
Dhanushka Samarasinghe, Director Research TKS Securities predicted that corporate earnings growth is likely to be at 17 per cent. “This year we don’t expect the rupee to lose more than 2-3 per cent (against the dollar),” he added.
He said that interest rates will continue to ease but there may be a slight cash crunch by mid-year. “This will mean that people will step up their investments and consumption will rise,” he said.
He added that weather anomalies will act as a flip side to this story, noting that, “If there’s a drought, then we will have to change our forecasts as the macro fundamentals will be affected.” Murtaza Jafferjee, CEO JB Stockbrokers said that one of the main catalysts for the expected rally in the CSE this year is low interest rates. “The investors will look for alternatives to fixed income securities,” he said, but warned that this should be coupled with better outlook for corporate earnings. He added that the December (last year) earnings won’t be spectacular. “The broad outlook for the last quarter earnings will be a mixed bag,” Mr. Jafferjee noted, adding that the low interest rates will take a while to translate into corporate earnings.
The bourse concluded last year on a marginally positive note where the main index gained 5.5 per cent year on year recovering from two consecutive years of negative growth in 2012 and 2011. Despite the marginal growth in the market in 2013, the overall market turnover was Rs. 203.2 billion due to the lack of market participation by the local institutions and the local retail fraternity.
The market momentum was shouldered by foreign investors (foreign buying was 42 per cent of the total turnover) and few selected local high net-worth individuals who were interested on medium to long term fundamentally sound stocks.
The Colombo bourse saw only a handful of listings by way of introductions, but this behaviour led to a boost in the debenture market where 21 listed corporate debentures kicked off. “All of these debenture issues concluded successfully led by the active participation of many local and foreign institutional funds and the tax concessions received by the debenture market. Further corporate earnings growth saw minimal growth, suppressed by the slowdown in the overall local economy and other prevailing world macro-economic conditions,” according TKS Securities’ Samarasinghe.
The regulator’s attempt to improve the market liquidity and transparency by stipulating a minimum public float and extending the disclosure requirement on dealing by directors, CEOs and related party transactions would strengthen the investor confidence and thus boost the market towards the latter part of 2014.
With the growth in the broad economy all sectors would recover in 2014 and corporate earnings to grow 17.8 per cent and Banking, Finance and Insurance, Tourism, Diversified, Retail and Manufacturing sectors would be the key sectors, Mr.Samarasinghe added.