Sri Lanka’s Business activity continues to improve, First Capital Research states in a report.
LMD Business confidence was also at a 12-month high in June 2024 and surpassed the 100 threshold.
“Despite the improvement in sales (crossing the neutral threshold in 4Q2022), business profitability climbed above the neural threshold for the first time in 1Q 2024 (since 3Q 2022).”
The decline in inflation from the peak seen in September 2022 and continuous recovery in key economic indicators, led towards the recovery in capacity use outperforming expectations. The improvement in utilization accelerated since the initial growth in GDP in 3Q 2023.
“Finance expenses of the listed corporate continue to edge down amid the decline in interest rates. We expect pressure from debt service payments on corporate profitability to ease, as net lending rates adjust down in line with the CBSL lending rates.
The report also says that since their last update in April 2024, ASPI moved largely sideways and recorded a marginal dip of 4.7 %.
“The decline in the ASPI during the period was largely due to the delay in the IMF third tranche. “The finalisation of the negotiations with bilateral lenders and ISB holders were a major cause for the uncertainty created.
“Further uncertainty related to the election was also a supportive factor for the lull period in the market.
“Despite the marginal drop in ASPI, listed corporate earnings illustrated a significant recovery and recorded a growth 38.3 % YoY to Rs. 118.5 Bn in 1Q, 2024.
“Return on alternative investments have declined steadily following the accelerated decline in the rates of fixed income instruments as AWDR dipped below 9 . 0 % to 8.38 % while AWFDR dips to 10.39 %.
“SL has now reached a deal with external creditors which may create a certain level of clarity for the investors while the completion of the process may showcase strong buying interest among local and foreign investors.
“Despite having a limited range of alternative investments, equities continue to offer the highest yields. The ASPI recorded a 28.6% YoY return for the quarter ending Jun24, up from 23.0% YoY in the quarter ending Mar-24,” the report added.
