1. DDO risk passed: Clarity provided on the DDO, following a prolonged period of uncertainty over Sri Lanka’s debt restructure
2. Lower interest rates: Interest rates expected to decline below 12% as inflation reaches single digit levels in 2H2023E creating space for further policy rate cuts
3. Market re-rating warranted: Market trades at a steep discount on both an inflation-adjusted basis and on a PER basis
4. Foreign push: Increase in foreign participation with debt metrics improving and impending conclusion of debt restructure
5. Post-crisis economic revival: Economic vital signs have recovered above expectations, promoting consumer and business confidence and a gradual uptick in credit which will drive positive GDP from 3Q2023E onward
6. Upturn in corporate earnings: Reduced burden from finance costs supports bottom-line expansion while gradual recovery of volumes would drive top line growth
Our investment themes for the next 12 months focus on companies that will benefit from:
1)Recovery in economic activity
2)Declining interest rates and
3)Counters that have been negatively impacted by overweighting of risk factors in the past year
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