The Colombo Stock Exchange (CSE) trades amongst the cheapest in the region with corporate earnings on the recovery, in terms of book value whilst Price to Earnings (PE) trades slightly above, First Capital said.

Accordingly, First Capital said that CSE remains the cheapest amongst peers in terms of book value whilst PE trades slightly above mainly due to depressed earnings seen during the first half of 2023, and is expected to re-rate following positive expectation of earnings in the next 12 months.

First Capital expects listed corporate earnings to grow by 42 percent and 16 percent by the end of 2024 and 2025 respectively.

It said that PE of the main index has fallen below 10x, offering a discount of 20 percent to the historical average and 25.5 percent discount to the regional peer PE of 12.6x.

Moreover, First Capital said that earnings of listed companies for the first quarter of 2024 grew 56 percent year-on-year (Y-o-Y) with GDP growth also spiking by 5.3 percent, displaying strong signs of economic recovery.

“We expect GDP growth and corporate earnings may further strengthen towards the 2H24 amidst lower interest rates and increase in liquidity in the system. First Capital Research expects corporate earnings to grow by 39 percent by the end of 2024, while growing 16 percent by the end of 2025,” It said.

Further, First Capital said that the market will re-rate towards the election, as investor attention is likely to move towards elections as elections get announced.

“In line with the past, elections itself creates a lot of business activity and government spending in the economy which may again support growth and corporate earnings,” it said.