Corporate earnings likely to rebound 40% by 2026: CAL

Corporate earnings in Bangladesh are projected to rebound by around 40 percent by 2026, buoyed by falling inflation, easing global commodity prices, lower borrowing costs, and stronger sales, according to CAL Bangladesh's latest outlook, All Signals Green.

Earnings of manufacturing and services companies will rebound on volume growth, margin gains, and lower finance costs, the investment bank also said.

CAL forecasts corporate revenue growth of 16 percent year-on-year in 2025, supported by easing inflation. Gross margins are expected to rebound as import costs decline on the back of lower global prices and a stable taka.

Repricing of short-term debt is also set to reduce finance costs for highly leveraged companies, supporting earnings recovery.

DSE TO HIT 10,000-MARK

With corporate earnings strengthening and the macro-outlook improving, CAL expects equities to attract funds from other asset classes.

The report noted that with the market trading 50 percent cheaper in dollar terms and valuations at near 10-year lows, foreign investors are returning. A reversion to historical holding levels will lead to new inflows.

The report forecast that the Dhaka Stock Exchange (DSE) index will surpass the 10,000-point mark, an all-time high, within the next 18 to 24 months.

Calling the current environment a "Goldilocks scenario for equities," meaning stable growth with low inflation, CAL said Bangladesh could witness one of its strongest equity rallies in history.

The investment bank noted that macroeconomic indicators are already showing strong positive momentum, creating a stable and favourable environment.

Inflation has eased to 8.5 percent on the back of tight monetary policy and favourable global commodity trends.

Foreign reserves have reached a two-year high, providing critical support for a stable taka, while lower government securities yields signal easing interest rates. Positive current account and balance of payments positions further reinforce this stability, boosting overall investor confidence, it added.

"The outlook for the equity market is equally encouraging."

The report projects that the DSEX holds up to 85 percent upside potential, drawing parallels with recent sharp rallies in markets like Pakistan and Sri Lanka, where indices surged more than 150 percent after similar macroeconomic turnarounds.

Pakistan's Karachi All Share Index soared 214 percent in two years while inflation dropped, and Sri Lanka witnessed a 162 percent market return in the same period, it pointed out.

CAL Bangladesh projects the next two years as a pivotal period for the nation's capital markets, with the potential to attract both domestic and foreign investment at unprecedented levels.

It said the confluence of macroeconomic stability, strong corporate performance, and renewed investor confidence could propel the DSE into its most dynamic growth phase to date.

The market went on a bull run following the national polls in 2008 after two years of interim government tenure. With elections likely to be held in early 2026, post-election political clarity will boost investor confidence.

"Current low valuations offer an opportunity to lock in elevated dividend yields," it said, adding that major listed consumer companies are trading at attractive valuations.

The financial intermediary forecasts that the exchange rate might remain within Tk 122-125 per dollar by next December, as both the current account and balance of payments are expected to turn positive.

It expects inflation to fall to 6.5-7.5 percent by next December, driven by tight monetary policy and a high 2024 base. Inflation is therefore expected to hit a three-year low.

Interest rates will fall to single digits due to weak credit demand and strong real returns attracting inflows.

CAL Bangladesh, however, said political unrest, international conflict, and a possible recession from tariffs could affect major trading partners and the global economy.