This is a report I prepared for BRAC EPL Stock Brokerage. With special permission and by deleting some content I am reprinting the report here. Note that this is just a macroeconomic analysis and in no way gives any stock recommendation. Also, remember that macroeconomic conditions are dynamic and things might have changed from the date of publishing (Jan 15, 2014).
We see 2014 to be very important in deciding the future of the country and politics could play a major role in that. Economic activity in terms of investment, credit growth, import etc is likely to be subdued at least till the first half of the year. On the bright side, the strong foreign exchange reserve minimizes the risk of a currency crisis, while relatively benign inflation will allow space for monetary stimulus. Furthermore recent developments in the political arena show that the worst case scenario is a low possibility as the opposition has called off strikes till further notice.
Despite a relatively mixed outlook in terms of economy, we do expect total corporate earnings of the listed universe to show growth after three consecutive down years (primarily due to financial sector earnings drop).
However, the 12M trailing P/E multiple of 18.2x indicates that some of this growth has already been discounted in the market. A quicker resolution to the political stalemate will be an upside risk in our view. Things to observe carefully would be the 1. Political developments 2. Health of the banking sector and the 3. RMG sector which came under increased scrutiny in 2013