Sunday, January 13, 2013

Prospects for 2013: Market interest rates to adjust downward

The overall market interest rates may revise downward this year since the borrowing cost of commercial banks will decline due to the reduced policy rates, a report by Asha Phillip Securities Ltd said.

The report which projected the economic prospects for 2013 said that downward interest rates will stimulate the stock market activities as a shift in investments from fixed income securities to high yielding investments will be witnessed. “Inflation is also expected to fluctuate within current levels amidst volatility in food prices which would result in the real interest rate falling further. Therefore, investors will search stock market investments with relatively sound earnings outlook of most of the listed companies,” it said.
 According to the report, the banking and finance sector is expected to grow at a faster pace in 2013 against the growth levels recorded in 2012 supported more with the liberalized credit ceiling coupled with the expected growth in asset quality. “Moreover, the reduced interest rates will provide a hefty cushion on the bottom lines of companies with relatively high gearing via reducing interest cost, driving to record an upsurge in earnings.”

The report predicted that given the pick-up in consumption levels in the economy together with the growth in tourism industry, a fresh round of demand for food and beverages will happen, enabling the food and beverage sector to experience a prospective year. Further, the government’s plan on promoting a “Sports Economy” concept will also intensify the growth prospects of the sector, it added. It also said that rebounding of construction activities amidst relaxed interest rates and increased accessibility to credit will create opportunities for construction companies, generating opportunities for local construction material manufacturing sector such as cement and cables with the support granted by the Budget 2013 via offering tariff differentials at the point of custom.

The report was skeptical on the tea plantation sector saying that a wage revision is knocking the door. “Tea plantation companies may face another round of challenge with the upcoming wage revision in mid-2013, eroding their cost factors. Rubber and palm oil driven companies may operate with minimum hit against this move due to relatively low level of labour requirement compared to tea sector.”

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