First Capital Research cuts ASPI target to 5,000 for June 2020

Apr 03, 2020 (LBO) – First Capital Research has reduced its ASPI target to a mere 5,000 for June 2020 as earnings of most companies are likely to be negative during the 2Q & 3Q2020.

The research arm, however, said a possible recovery in 4Q2020 may push the index towards 6,000 by December 2020.

With the closure of most businesses and the imposition of curfew, normalcy in business only likely to return once the coronavirus spread is brought under control.

“Thereby we reverse our Earnings Outlook to ( 15% 20%20%) for the 2020E/FY21E, with significantly adverse expectations in consumer, tourism, and construction-related counters,” FCR said.

Tourism earnings are likely to have the biggest impact as even though COVID-19 spread slowdown in Sri Lanka the major decline in global travel with the spread of the virus across the world may take at least 6-8 months to normalize.

The exponential spread of coronavirus and the complete shutdown of most businesses is expected to have a major adverse impact on all companies listed in the Bourse.

“Despite the tax cuts and the lower interest rate regime, the fear created among the public relating to the coronavirus may only result in slow growth of consumption in the system and that too more towards 4Q2020.”

Meanwhile, the First Capital Research expects the budget deficit may rise to 9 to 10 percent, higher than their original estimate of 7 percent.

According to the FCR, the GDP outlook appears grim, but the only thing that favors Sri Lanka is that Q2 is usually the country’s worst quarter in any given year due to the April new holidays.