• Falling interest rates and corporate earnings fuel market rally  
• Banking counters lead the charge amid ISB restructuring gains  
• Govt. securities yields stabilise at single digits  
• Market analysts revise ASPI target to 17,000 for 2025  

The preceding week saw the benchmark All Share Price Index (ASPI) surpass all expectations to cross the historic milestone of 16,000 basis points, causing market sources to revise their 2025 target to 17,000 basis points in anticipation of the continuation of the current bull run.

Speaking to The Sunday Morning Business, First Capital Holdings Manager – Research Ranjan Ranatunga stated that whilst the highs reached by the current bull run in the market had exceeded expectations, the market movement was supported by fundamentals.

“When you look at fundamentals, there are a few things supporting the current bull run. Firstly, there are the falling interest rates and then we have corporate earnings. 

“In terms of interest rates, we do not see any pressure coming in and therefore they will remain in the single digits until the end of the year. We will see steady growth in corporate profitability as well,” he said.

He pointed out that yields in the Government securities market were still on a downtrend, with yields at last week’s Treasury bill (T-bill) auction falling by approximately 5 basis points across all tenors. Therefore, there are no alternative investments available in the market for investors.

However, he expressed his belief that yields of Government securities had almost bottomed out and that therefore there was no massive upside in terms of yields declining further. Nevertheless, he noted that he expected the yields to remain in the single-digit levels for the foreseeable future.

Elaborating further, Ranatunga revealed that the current bull run in the market had been predominantly driven by banking counters.

He added: “The banks had purchased Sri Lanka’s International Sovereign Bonds (ISBs). Therefore, during the previous year, given that the ISBs were about to be restructured, the banks took a conservative approach and made provisions for about 50-55% of the face value of the ISBs they had. 

“However, there was an LKR option included in the ISB restructuring deal, in addition to a US Dollar bond and an LKR bond offered to investors. With that, the haircut has been reduced significantly. This will result in a reversal of the extra provisions that the banks had made. 

“Therefore, in terms of exposure to ISBs and the possibility of a higher reversal of provisions, the main counters are Commercial Bank, HNB, NDB Bank, Sampath Bank, and Pan Asia Bank. That is why we are seeing those counters running.”

Ranatunga further revealed that in the backdrop of the current bull run in the market and favourable market conditions, they had revised up their 2025 target for the ASPI from 15,000 basis points to 17,000 basis points.