July 11, 2018 (LBO) – First Capital Research said they downgraded their exchange rate target from 159 rupees to 161 rupees per dollar for end 2018 since a stronger dollar is more likely in the coming months.
With four fed rate hikes on the cards over next 12 months, First Capital Research said they are targeting an exchange rate of 164.5 rupees per dollar over the next 12 months up to June 2019.
“Dollar index is expected to remain strong over the next 12 months while with continued reforms inflows into Sri Lanka debt and equity capital markets are likely with the attractive yields,” First Capital Research said
“Further Sri Lanka moves into the peak season of exports Sep-Mar. We expect more stability in the rupee in 2H2018, but downgrade our target to LKR161.”
First Capital expects the yield curve in government securities to peak during the third quarter of 2018 and registers a slow downtrend.
“Despite having some pressure in 1Q2019 it is not expected to be as high as 3Q2018, thereby, from bearishness at the start of 2018, we are now bullish on bonds beyond 3Q2018,”
“We believe 1Y, 5Y & 10Y trade within the bands of 9.0%-10.0%, 10.0%-11.0% & 10.5%-11.5%.”
First Capital, however, said that any breakaway from reform program (Deviations affecting IMF program) or political deadlock may result in breaking the upper bands of the tenors.
First Capital also expects market returns to be stronger despite slower earnings growth outlook of 5 to 7 percent.
“Healthy valuations may warrant a re-rating of the market providing returns of 13% market return over the next 6 months while targeting 15% return for 2019E supported by accelerating earnings growth to 10-12%.”