Sri Lankan economy from a minus growth bounced back to positive territory in the third quarter of 2023 and this positive sentiment reflected a major gain to the corporate sector with December 2023 quarter earnings increasing by 89.7% for 277 companies.
This gain was 31.4% on a quarter to quarter basis marking a significant turnaround from four consecutive declines amidst economic challenges. “This resurgence is fuelled by the improved economic sentiment,” said First Capital Research in their Quarterly Results Review for December 2023. First Capital Research attributed this to three key factors.
Food Beverage and Tobacco Sector (+95.5%YoY): Reduction in overall finance cost and operating expenditure coupled with improved consumer buying patterns aided to the sector’s profitability. Diversified Financial Sector (+128.5%YoY): The declining interest rate environment contributed to thesector’s profitability. Capital Goods Sector (+480.3%YoY): Decline in inflation, improved cost structures and the higher influx of tourists arrivals contributed to the overall profitability.
The top profit-making companies were mainly banks, financial institutions and manufacturing companies, capitalizing on the transition from previously elevated interest rates to lower ones coupled with the improved economic sentiment.
The Food, Beverage and Tobacco sector emerged as a significant contributor to market earnings, experiencing a noteworthy growth of 95.5%YoY. The strong influx of tourist arrivals, economic growth coupled with the lower inflation environment which strengthened the purchasing power of the consumer aided to the overall profitability of the sector earnings.
The Capital Goods sector displayed a substantial upswing in earnings for December-23 by 480.3% YoY, thereby significantly influencing the overall market earnings. Companies demonstrated resilience in their performance amid the gradual increase for demand for Sri Lankan exports and the uptick intourists’ arrivals coupled with the gradual pickup in consumer demand dueto the low inflation environment. However, the Energy sector recorded a 78.6% YoY dip in quarterly earnings as at December 2023. This was attributed to increased operating costs and selling and distribution expenses. Additionally, consumer demand was subdued due to elevated prices. However, despite the decrease in global and local fuel prices, LIOC’s earnings fell by 63.4%YoY due to higher costs of sales, frequent price adjustments, and the implementation of excise duties.
The sector’s earnings were further impacted by global geopolitical tensions and currency fluctuations. Transportation sector too recorded a 272.3%YoY decline in earnings for December 2023.
