First Capital trims growth to 3.6% in 2020 | Daily News


 

First Capital trims growth to 3.6% in 2020

With Covid-19 spreading at a rapid pace worldwide we believe it is likely to have an indirect impact on Sri Lanka as well, First Capital said in an investment strategy report.

“With travel restrictions around world, global travel has drastically deteriorated affecting outward and inward travel in Sri Lanka impacting tourism earnings,” it said.

Apparel and textile industry is also facing number of delays in sourcing raw materials in order to complete the orders. Construction industry has significantly been affected with bulk of the raw materials being sourced from China.

“Our previous expectation was an accelerated growth in consumption and recovery in tourism to positively impact GDP growth. However, with the coronavirus overall activity in the system is likely to be slow to recover and as a result now we only expect a gradual improvement in consumption.

“Thereby, First Capital Research is downgrading its original GDP growth target of 4.1% to 3.6% for 2020E while also downgrading 2021E to 3.9% from our previous target of 4.3%.” ASPI target trims to 6,250 by Jun 2020 and 7,000 by Dec 2020

The coronavirus and the related incidents are likely to have an indirect adverse impact on Sri Lanka. It is likely to delay the process towards an accelerated recovery of consumption. Despite the tax cuts and the lower interest rate regime, the fear created among the public relating to the coronavirus may only result in a gradual growth of consumption in the system, the report further said.

“Due to the delay in acceleration of consumption, we have lowered our earnings outlook for 2020 with lower than expected earnings from consumer, tourism and construction related counters. In line with the slower growth in consumer demand, we expect a lower growth in retail construction though lower commodity prices may provide stronger margins. Strong s for tourism earnings also have been lowered with expectations that Feb-Jun tourist arrivals may be affected with the decline in global travel.”

“Despite the hefty blow to equity market illustrated by the plunge in the index by more than 1,000 points in 1Q2020, we maintain our target market PER in the range of 8.5x-9.5x. However, with the lower earnings outlook, we would like to trim down our Jun 2020 target to 6,250 and Dec 2020 target to 7,000,” according to First Capital report.

 


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