Stability, Valuations and Reforms Position Sri Lankan Equities for Re-Rating

Sri Lanka’s equity market may be on the brink of a major re-rating as political stability, improving corporate earnings and still-discounted valuations align to attract renewed investor interest, according to AFC Asia Frontier Fund Co-Fund Manager Ruchir Desai.

Speaking at the Sri Lanka Economic Summit, he said the country is in its strongest position in years, with banking, consumer and industrial firms reporting earnings comparable to pre-crisis performance. Desai highlighted that the broader market trades at around 11 times earnings well below historic levels and regional peers suggesting ample upside if stability endures. He noted that foreign activity at the Colombo Stock Exchange remains subdued due to a global shift toward US markets, but predicted inflows could return by 2026 as confidence builds. With tourism and logistics offering untapped growth and domestic equity participation still low, he said Sri Lanka has “significant headroom for long-term capital market expansion.”

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