ECONOMYNEXT – Sri Lankan fast moving consumer goods and manufacturing companies are expected to report higher earnings in the September quarter given low fuel and commodity prices and deflationary conditions that have improved buying power, brokers said.
The effect of the price reductions on the economy were seen large as deflation was last reported two decades back, Sampath Securities said in an earnings note to clients.
“We expect the level of consumption to be increased over the quarter with the reduced price levels. As a result we expect companies with FMCG exposure to post notable results during the period.”
The island has been experiencing deflation in the three months to September after the new government reduced prices of essentials items in the food and non-food categories earlier this year.
The brokers said sharply lower global commodity prices during the quarter should also help manufacturers by reducing costs.
Oil prices declined by 24 percent to 46 US dollars a barrel in September from the end of June while copper prices dropped 12 percent due to weak demand from larger economies.
Global cotton prices declined 12.3 percent during the quarter to 59.2 US cents a pound due to a supply glut while aluminum prices dropped five percent.
“Further, domestic fuel prices revised down earlier this year remained constant during the quarter and electricity tariffs revised down also remained unchanged,” Sampath Securities said.
“Therefore, since the commodity prices and energy prices remained favourable during the quarter, we expect certain counters in the manufacturing sector to report bolstered results.”
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