Sri Lanka’s stock market is heading towards the bottom of a cycle, with opportunities for buying and potential recovery in the coming quarters, a research house said.
“With the recent stock market plunge, we believe that we inaccurately assessed the market to be at the depression stage during the December 2018 period,” the research arm of First Capital, an investment bank, said.
“Considering the reactions of the market participants it was evident that the ASPI was at the latter part of the “Anger” stage in the psychological cycle.”
“The positive developments experienced in the recent past, the upcoming election season, liquidity improvement and the possible rate cut are considered to be a number of possible trigger points for an upside in the market,” it said.
The investment bank said that the power struggle in parliament has died down following the passing of the budget in March and April, while the upcoming election season may boost economic activity and renew consumer demand.
“Thereby, we believe the ASPI (All Share Price Index) is likely to be entering the depression stage in the current market cycle with a considerable number of positive expectations over the next few quarters.”
First Capital said it has increased its portfolio to 80 percent equity holdings in April, from 60 percent in December, as the ASPI is expected to return to 6,000 levels in the next quarters.
In the 3 months from December 26 to April 02, the ASPI had dipped 7 percent with panic selling on the back of weak earnings, it said.
The ASPI closed around 5,591.83 on Wednesday.
First Capital Research said with a stabilizing rupee and a reform program with the International Monetary Fund back on track, foreign inflows to equity markets are expected to accelerate, amidst strong valuations.
Index-heavy stocks are attractive, it said.
“As we gradually turn bullish on stocks, we recommend investors to accelerate accumulation into blue chip counters which are trading at heavy discounts.”
“For investors who are already into equities, we believe this is an opportune period to increase exposure and average the existing portfolios.”
First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research delivers a heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.
First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.