Softlogic Stockbrokers keeps market earnings growth forecast steady at 11%-13%

Monday, 9 September 2013 00:12 - - {{hitsCtrl.values.hits}}

Despite challenging times for corporate earnings up to June, Softlogic Stockbrokers is retaining its market earnings growth forecast steady at 11% to 13% for the current financial year. “We believe the overall market earnings are likely show a slow and gradual recovery with consumer demand for manufacturing and bank credit likely to record a gradual uptrend. We hold our market earnings growth target for Dec 2013E/Mar 2014E steady at 11%-13%. Amidst challenges in the economy, expected rise in interest rates and negative market sentiment, market returns are likely to be marginal in the short term and may show an uptrend towards medium to long term,” Softlogic Stockbrokers said, having analysed results released by 275 listed companies. “The slowness in the economy will continue to partially affect company earnings amidst lower consumer demand,” the broking firm said, adding that banking earnings are likely to rebound with the currency depreciation leading to exchange gains. Telecom, Food & Beverage and Trading sector earnings are likely to be adversely affected with the currency depreciation while most companies with foreign debt are expected to record exchange losses. Diversified sector is likely to benefit amidst dollar income and overseas investments. As per its review, market earnings encountered a marginal growth up by 3% YoY to 34.4 billion while it dipped 33% QoQ to Rs. 51.3 billion analysing 275 companies that have released June quarter results. Power & Energy, Investment Trusts and Trading sectors underscored earnings growth amidst dormant performance in Banking and Finance and Diversified sectors contrary to Softlogic Stockbrokers’ view.

Banking and Finance sector earnings denoted a 7% YoY dip which weighed down overall market earnings performance primarily reasoned by pawning provisions and lower exchange gains. Diversified sector earnings traced a similar performance to the March quarter as earnings remained broadly flat with c.81% of its contribution stemming from key large players. Power and Energy sector spearheaded market earnings with 487% YoY growth. Energy sector (LIOC and LGL) earnings were backed by the bearish trend in oil prices (reflecting a 4% YoY dip up to June 2013) resulting in higher margins for petroleum products while improved rainfall drove earnings growth of hydro power companies. The Investment Trusts sector earnings grew 397% reasoned by positive momentum in market movement during 2Q2013 largely backed by gains in blue-chip counters. Trading sector earnings improved 344% YoY driven by the 3.3% YoY rupee appreciation during 2Q2013 coinciding with the peak season for imports. In its earnings update in March 2013, Softlogic downgraded expected market earnings growth (by 200bps) to 11%-13% from 13%-15% forecast made in December 2012.