Business earnings to take a hit from rising inflation levels which are projected to accelerate at double digits for the rest of the year, First Capital Research stated.
“While 2022 inflation is expected to peak at 17.1% in a base case scenario and may increase up to 21.4%
on worsening economic conditions,” First Capital projected in its latest research report.
Sri Lanka’s inflation accelerated to a record high of 15.1% in February. As the Central Bank of Sri Lanka (CBSL) floated the Rupee early this month, prices of goods across the aisle rose substantially.
First Capital predicted March Inflation to accelerate at a range of 15.1% to 16.4%.
Although monetary policy tightening is expected to trim down inflation by easing pressure from demand-pull factors, FIrst Capital noted that major supply-side issues may remain unattended and thereby push the prices further upward
amidst the current macroeconomic and external sector turmoil.
“This may lead to consumers being left with less disposable income which reduces the discretionary expenses that may in turn impact negatively on business earnings,” it said.
Therefore, it recommended investors to move towards defensive counters out of which Dollar income companies are on the priority list while focusing on stocks that have NOT surged in price.
Life Insurance Companies and Banks are expected to benefit from the rise in interest rates.