Sri Lanka Economic & Equity Outlook 2026
A research-led review of Sri Lanka’s last decade, the 2022 crisis and recovery, the current global environment, Colombo Stock Exchange conditions, and a sector-by-sector shortlist of companies that appear best positioned for a 3–5 year investment horizon.
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Executive investment thesis
Why Sri Lanka is investable again
The crisis phase has moved into a recovery and reform phase. GDP expanded 5% in both 2024 and 2025, inflation normalised dramatically from the 2022 peak, reserves rebuilt, the current account improved, fiscal balances strengthened, and external debt restructuring is largely complete. Credit growth and domestic demand have returned.
Why 2026 requires selectivity
The easy “recovery rerating” phase has already delivered large equity gains. The ASPI rose 49.7% in 2024 and another 41.9% in 2025. In 2026, higher energy costs, renewed inflation pressure and an 8.75% policy rate make earnings quality, pricing power, debt levels and cash flow more important.
Most attractive structural themes
Bank credit normalisation; domestic consumption; telecom/data; construction and infrastructure; logistics; healthcare; selective tourism; energy security and renewables. Export-oriented groups also provide useful FX diversification.
Biggest risks
Policy slippage, geopolitical energy shocks, currency depreciation, higher-for-longer rates, taxation, weak foreign investor participation, rich valuations after the rally, weather shocks and slower global demand. Sri Lanka remains a frontier market with higher volatility and lower liquidity than developed markets.
Sri Lanka: the last 5–10 years
Global environment and what it means for Sri Lanka
Growth
The IMF’s July 2026 update projects global growth of 3.0% in 2026 and 3.4% in 2027. The World Bank is more cautious at 2.5% for 2026. Both highlight geopolitical and commodity risks.
Inflation and rates
Global disinflation has stalled. The IMF projects headline inflation rising from 4.1% in 2025 to 4.7% in 2026 before easing in 2027. For Sri Lanka, an energy importer, this raises fuel, transport, FX and interest-rate risk.
Technology cycle
AI-related investment is supporting global capital spending and technology demand. Sri Lankan listed firms are not direct AI plays, but telecom, data infrastructure, logistics and export manufacturers can benefit indirectly from digital investment and productivity gains.
Portfolio implication
Prefer businesses that can survive a weaker rupee and higher rates: strong deposit franchises, low leverage, recurring domestic demand, pricing power, export earnings, infrastructure exposure and high operating cash flow.
Colombo Stock Exchange: opportunity after a major rerating
The CSE’s 2024 and 2025 rally was supported by macro stabilisation and improved earnings. In 2025 average daily turnover rose to roughly Rs.5.18 billion from Rs.2.24 billion in 2024, while the market still recorded net foreign selling. By 31 March 2026, market capitalisation had risen to about Rs.7.52 trillion and the market P/E was reported around 8.7x in one major listed investor’s annual report—still moderate by many global standards, but individual stocks can trade at very different valuations.
Sector-by-sector investment shortlist
Ranking combines franchise quality, recent earnings trend, balance-sheet resilience, structural sector tailwinds and diversification. “Core” means strongest long-term research conviction; “Watch” means attractive business but entry valuation/cyclicality needs closer attention; “Higher risk” means stronger upside sensitivity but more volatility.
| Sector | Share | View | Why it makes the list | Main risks |
|---|---|---|---|---|
| Banking | Commercial Bank — COMB | CORE | Best all-round banking candidate. 2025 bank net profit Rs.58.5bn; normalised ROE 19.5%; NIM 4.51%; net Stage-3 ratio improved to 1.54%; leading CASA franchise; international operations diversify earnings. Strong beneficiary of credit normalisation. | Rate cycle, credit costs, taxes, sovereign/macroeconomic exposure. |
| Banking | HNB — HNB | CORE | Large systemically important bank with improving asset quality and strong capital. Q1-2025 net Stage-3 ratio was 1.82% and total capital adequacy 21.89%; 2025 group PAT was reported near Rs.49.8bn. Broad retail/SME franchise and diversified financial subsidiaries. | Banking-cycle exposure and competition; valuation after rerating. |
| Banking | Sampath Bank — SAMP | WATCH / ACCUMULATE | Strong digital franchise. 2025 reported ROE 17.93%, PAT about Rs.30.2bn, gross loans +27%, Stage-3 ratio 3.31%. Attractive if bought at a sensible P/B versus COMB/HNB. | Asset-quality gap versus strongest peers; faster loan growth can create future credit risk. |
| Diversified | John Keells Holdings — JKH | CORE | Arguably the best single-stock proxy for Sri Lanka’s recovery. Exposure to ports/logistics, consumer, retail, tourism, property, financial services and EVs. City of Dreams Sri Lanka turned EBITDA-positive and Colombo West International Terminal exceeded initial expectations in FY2025/26. | Capital intensity, execution at City of Dreams, tourism/geopolitical sensitivity. |
| Diversified | Hayleys — HAYL | CORE | Highly diversified domestic + export group. FY2025/26 revenue reached Rs.585bn (+19%) and PBT Rs.38bn. Exposure spans logistics, consumer, manufacturing, purification, agriculture, textiles, energy and construction—useful hedge against a single domestic cycle. | High borrowings, complex group structure, FX/commodity sensitivity. |
| Diversified | Aitken Spence — SPEN | WATCH | Strong tourism/logistics exposure and geographical diversification. FY2025/26 tourism PBT rose 31.6% to Rs.7.9bn, benefiting from Sri Lanka, Maldives and India. | Tourism shock sensitivity; hotel and overseas exposure. |
| Consumer / Retail | Cargills (Ceylon) — CARG | CORE | Defensive domestic-consumption compounder. FY2024/25 revenue Rs.241.8bn, PAT Rs.7.27bn (+22.5%), operating cash generation strong. Food City distribution provides scale and recurring demand. | Thin retail margins, wage/energy costs, consumer purchasing-power pressure. |
| Consumer / Retail | Ceylon Cold Stores — CCS | CORE / PRICE-SENSITIVE | Keells supermarkets + Elephant House brands. FY2025/26 revenue Rs.184.6bn (+17%), PAT Rs.7.9bn (+32%), ROE about 32%. Strong operating momentum and consumer recovery exposure. | Valuation can become expensive; energy/input costs; retail execution. |
| Telecom | Dialog Axiata — DIAL | CORE | Best telecom operating momentum. FY2025 revenue Rs.179.6bn; EBITDA Rs.86bn (+30%); NPAT Rs.20.8bn (+67%); operating free cash flow Rs.49.3bn. Structural data demand and scale support the thesis. | Capex intensity, FX-linked equipment costs, regulation and price competition. |
| Telecom | Sri Lanka Telecom — SLTL | WATCH / TURNAROUND | 2025 revenue Rs.114.2bn and PAT Rs.10.0bn, up 221%, driven by cost/finance improvements. Valuable fibre/fixed infrastructure and Mobitel exposure. | State influence, slower revenue growth, execution and capital intensity. |
| Energy | Lanka IOC — LIOC | CORE / CYCLICAL | Strong strategic position in fuel distribution with approximately 25% national market contribution; FY2025/26 revenue Rs.280.7bn and PAT Rs.10.6bn. Energy security and network expansion support long-run relevance. | Government pricing, oil-price volatility, working capital, FX and policy risk. |
| Energy | WindForce — WIND | WATCH / GROWTH | Direct renewable-energy exposure with wind, solar and hydro assets plus regional operations. Partnership with IFC on Sri Lanka’s first 100MW utility-scale solar project provides a structural growth catalyst. | Project execution, financing costs, tariff/regulatory risk, rainfall/wind variability. |
| Construction / Materials | Tokyo Cement — TKYO | ACCUMULATE ON WEAKNESS | Construction recovery play. FY2025/26 turnover rose 22% to Rs.61bn and cement volumes +28%, ahead of reported industry growth. Capacity investment positions it for infrastructure and private construction recovery. | Profit fell despite revenue growth due to input, depreciation and finance costs; commodity and FX risk. |
| Construction / Materials | ACL Cables — ACL | WATCH / GROWTH | Strong leverage to housing, infrastructure, grid investment and electrification. FY2025/26 results reported revenue around Rs.45.6bn and PAT around Rs.7.55bn, with EPS growth. | Copper prices, construction-cycle exposure, competition and valuation. |
| Healthcare | Lanka Hospitals — LHCL | CORE / DEFENSIVE | High-quality defensive. 2025 revenue Rs.14.47bn (+6%), PAT Rs.1.94bn (+45%), net margin 13%; reported debt-free position and first dividend in the period reviewed. Structural private-health demand supports long-term resilience. | Valuation, specialist staff retention, regulated/competitive healthcare market. |
| Healthcare | Asiri Hospital Holdings — ASIR | WATCH / GROWTH | Largest private hospital network exposure. FY2025/26 revenue was reported around Rs.35.1bn and net profit around Rs.3.06bn, materially above the prior year. | Debt/capex, medical staff costs, competition and execution across network. |
| Insurance | Ceylinco Holdings / CINS | CORE / VALUE | Longstanding insurance franchise. 2025 group GWP Rs.78.9bn (+17%), PAT Rs.11.5bn (+12%); year-end voting-share P/E was reported around 8.1x. Life business remains a market leader. | Investment-market sensitivity, claims inflation, conglomerate complexity. |
| Insurance | HNB Assurance — HASU | WATCH / GROWTH | 2025 group GWP Rs.30.45bn vs Rs.22.74bn and PAT Rs.2.38bn vs Rs.1.90bn. Strong premium expansion gives higher growth potential than some mature insurers. | Claims ratios, investment income volatility, smaller scale. |
| Tourism / Leisure | Aitken Spence Hotel Holdings — AHUN | ACCUMULATE / CYCLICAL | FY2025/26 revenue Rs.52.35bn (+7%), PAT Rs.5.03bn (+40%), finance costs lower; diversified across Sri Lanka, Maldives, Oman and India. Direct tourism recovery exposure. | Geopolitics, airline capacity, FX, leverage and seasonality. |
| Tourism / Leisure | The Kingsbury — KHL | HIGHER-RISK WATCH | Direct Colombo luxury-hotel turnaround exposure. FY2024/25 operating profit and PAT improved sharply; benefits disproportionately if business travel, events and tourism remain strong. | Single-asset concentration, tourism shocks, smaller earnings base and higher volatility. |
How I would approach buying
1. Do not buy all at once
Because the market has already rerated and 2026 remains macro-sensitive, use staged entries. A practical method is 4 tranches—for example 25% now, then add on meaningful market pullbacks or after earnings confirm the thesis.
2. Build a core before taking cyclical bets
A conservative research basket would start with financially strong, liquid leaders: COMB, JKH, HAYL, CARG/CCS, DIAL and LHCL. Add LIOC, TKYO, WIND or tourism counters as cyclical satellite positions.
3. Diversify by economic driver
A portfolio containing three banks is not truly diversified. Combine domestic credit, consumption, telecom, exports/logistics, healthcare, energy and tourism so one macro shock does not dominate the whole portfolio.
4. Require a valuation check
Before purchasing, compare current P/E, P/B, dividend yield, ROE/ROIC, debt and 5-year earnings history against each company’s own history and sector peers. This report deliberately avoids fixed target prices because live prices change daily.
My highest-conviction long-term research shortlist
| Priority | Company | Role | Why |
|---|---|---|---|
| 1 | Commercial Bank | Core financial | Strong franchise, improving asset quality, high ROE, credit recovery exposure. |
| 2 | John Keells Holdings | Core diversified | Best broad proxy for Sri Lanka recovery + logistics + tourism + retail + major new assets. |
| 3 | Hayleys | Core diversified/export | Multiple earnings engines and meaningful export/geographic diversification. |
| 4 | Dialog | Core digital infrastructure | Strong cash generation, data demand and sharp 2025 earnings improvement. |
| 5 | Ceylon Cold Stores | Consumer growth | Strong retail + branded FMCG growth and high ROE; buy only at sensible valuation. |
| 6 | Lanka Hospitals | Defensive healthcare | Strong profit growth, recurring demand and conservative balance-sheet characteristics. |
| 7 | Lanka IOC | Energy / inflation hedge | Strategic market position and strong profits, though policy-sensitive. |
| 8 | Tokyo Cement | Construction recovery | Volume growth and infrastructure recovery; more cyclical and margin-sensitive. |
What would make me change the thesis?
- IMF/reform reversal: material policy slippage, fiscal deterioration or stalled debt reforms.
- Persistent inflation: inflation remaining well above the 5% target and forcing another sustained rate-hiking cycle.
- External shock: prolonged oil/energy disruption causing reserve loss and sharp LKR depreciation.
- Bank asset-quality reversal: renewed Stage-3/NPL deterioration despite strong loan growth.
- Valuation excess: share prices rising much faster than earnings for several quarters.
- Foreign-liquidity weakness: continuing foreign outflows alongside falling turnover and market breadth.
Sources & references
- Central Bank of Sri Lanka, Annual Economic Review 2025 — release and key highlights, April 20, 2026.
- Central Bank of Sri Lanka, Monetary Policy Report — August 2026, August 13, 2026.
- Central Bank of Sri Lanka, Monetary Policy Review No. 3 of 2026, May 26, 2026.
- IMF, Sri Lanka Fifth and Sixth EFF Reviews, May 27, 2026.
- IMF, World Economic Outlook Update, July 2026.
- World Bank, Sri Lanka Development Update 2024.
- World Bank, Global Economic Prospects, June 2026.
- Colombo Stock Exchange, CSE in 2025.
- Colombo Stock Exchange, Index Performance — 8 September 2026.
- Commercial Bank, Annual Report 2025.
- John Keells Holdings, Annual Report 2025/26 and Q4 FY2025/26 investor presentation, available at Keells investor relations.
- Hayleys, FY2025/26 results.
- Cargills (Ceylon), Integrated Annual Report 2024/25.
- Ceylon Cold Stores, Annual Report 2025/26, CSE filing.
- Dialog Axiata, FY2025 financial results.
- Sri Lanka Telecom, Annual Report 2025.
- Lanka IOC, Investor Relations / FY2025/26 highlights.
- Tokyo Cement, FY2025/26 financial reports.
- Lanka Hospitals, Annual Report 2025.
- HNB Assurance, Integrated Annual Report 2025.
- Aitken Spence, Annual Report 2025/26; Aitken Spence Hotel Holdings Annual Report 2025/26.
- WindForce, Investor Relations.