Sri Lanka Market Rally Gains Momentum as Stability Lifts Investor Confidence

Sri Lanka’s capital market is poised for a strong multi-year upswing as political stability, economic recovery, and undervalued equities attract renewed investor interest, according to AFC Asia Frontier Fund Co-Fund Manager Ruchir Desai. Speaking at the Sri Lanka Economic Summit hosted by the Ceylon Chamber of Commerce, Desai said Sri Lanka is entering one of its most promising investment phases in a decade, following years of instability.

The Fund increased its Sri Lanka allocation in late 2022 when valuations were among the cheapest in the region, and the country now ranks as its second-largest exposure. Despite a 2.5-year market recovery, Desai argues equities remain undervalued, with earnings growth strong across banking, consumer and industrial sectors.

Foreign investor participation remains low but could return by 2026–2027, he said, urging deeper domestic participation. Sri Lanka’s strong corporate governance and underdeveloped sectors provide significant long-term potential.

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