Business Times

Colombo bourse expected to re-rate to attractive valuation – analysts

By Duruthu Edirimuni Chandrasekera

With the approaching earnings season coupled with the deep shed in indices, some analysts believe the Colombo bourse would re- rate itself to an even attractive valuation platform.

They say that the stock market has bottomed out and prevails in an attractive investment proposition with a price to earnings (PE) ratio of 14.5 times which has placed foreign investors with an opportunity to bargain hunt. “Towards the latter part of 2011, foreigners indicated their willingness to make a come-back which shows that foreign activity would ascend upward, in the coming months. With another quarter of earnings coming in, the valuations will look more attractive," an analyst said.

Analysts say that what should be looked at right now is at what level of multiples the market feels is attractive to buy again. “Personally I think the valuations are starting to look quite attractive on the blue chip and value shares with most of them having fallen more than 30% in the last 52 weeks. However, market sentiment is such that it tends to overshoot both on its way up and on its way down. So timing the entrance to the market would be the key to earning good returns this year,” Deshan Pushparajah, Head of Capital Markets at Capital Alliance told the Business Times.

He said that amongst the lingering risks to ponder when making the call on the attractiveness of valuations is the current spike in interest rates, which could slow down growth in some sectors towards the latter half of the year.

"Market anticipation of a currency devaluation could delay the return of foreign investors and impact import driven companies/ benefit export driven companies," he said. He also said that the ongoing crises in the Middle East and Europe could impact outward looking industries and those dependent on them.

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