Sri Lanka's Share Market Recovery, Resilience & Investor Opportunities

Cheran De La Harpe is a seasoned finance professional currently serving at HNB Investment Bank in Sri Lanka. He holds an education from the Postgraduate Institute of Management (PIM), bolstering his expertise in management and business. With over 500 LinkedIn connections, he exemplifies strong industry networks and key contributions to investment banking.

Q1: Could you briefly outline your professional background and what initially drew you to this field?

I have always been a curious person, and my interest in this field began during my GCE Advanced Level studies, where economics first sparked my passion. Since then, I have been deeply interested in understanding how markets, institutions, and people interact. Capital markets, in particular, fascinate me because they operate at the intersection of finance, human psychology, and economic anthropology.

I also developed conscious habits over time, particularly reading and writing, which helped further sharpened my thinking. Investment research, in turn, provided a structured framework through which I could apply and refine these skills.

I began working during the final year of my undergraduate studies as a part-time intern at MAS Investments and subsequently joined what was then Moody’s Analytics Knowledge Services, and Amba Research before. That phase was formative. I’m grateful for the strong mentors/team leads who helped sharpen my research discipline, writing clarity, and analytical rigor. My work spanned public equities across markets including Singapore, Hong Kong, the US, and the UK.

Subsequent roles exposed me to private equity and real estate, broadening my understanding of capital allocation across asset classes. I moved into the local market in mid-2025, when I joined HNB Investment Bank in my current role.

Q2: Looking at the Sri Lankan stock market today, which sectors do you see as most prominent in terms of growth momentum and profit potential?

The Sri Lankan equity market has moved through several distinct phases over the past five years. The COVID shock in 2020 disrupted activity, followed by the economic crisis and sovereign default in 2022, which drove extreme volatility and risk aversion. The strong market performance in 2024 and 2025 needs to be viewed in that context; it represents a rebound from a very low base as macro stability returned, supported by economic growth and currency stabilization.

We are now moving beyond recovery into a growth phase. As highlighted in HNB Investment Bank’s Strategy 2026 event themed “Recovery to Resilience”, the economy is becoming more resilient, which changes the sectoral opportunity set as we move to earning quality.

The Banking sector typically acts as the bellwether for our economy. Improving consumer confidence, rising discretionary spending, and renewed capital formation support loan growth and earnings momentum. Large private sector banks currently trade around one times book value. Historically, between 2010 and 2020, valuations averaged closer to 1.4 times. In comparable Asian frontier markets banks trade nearer 1.6 times, with Vietnam approaching two times book value. This suggests meaningful re-rating potential that is not yet fully reflected in local valuations.

Construction is a natural secondary beneficiary. Recommencing of large projects such as the Bandaranaike International Airport expansion and the Central Expressway and post-cyclone reconstruction projects should see the public order book starting to convert. On the private side, a low-interest rate environment is allowing for a gradual recovery in housing market.

Tourism presents a more nuanced opportunity. Arrivals have surpassed the 2018 pre-crisis peak, but earnings still lag due to weaker yields. Tourism sector contribution to GDP in 2025 was 3.2% compared to 4.6% in 2018. The focus now needs to shift toward tourist quality rather than volume. There are some macro-developments in play to support this: capacity expansion at BIA allowing better allocation of premium slots for Tier-1 airlines, eco-tourism initiatives like the Pekoe Trail, MICE tourism-events, and integrated developments like City of Dreams, Colombo should help extend stays length and life visitor spending.

Finally, consumer spending is recovering. Staples benefit from volume normalization, while discretionary demand improves with purchasing power. Mobility services remain at an early but expanding stage, driven by geographical expansion and strengthening network effects.

Q3. Despite record tourist arrivals, earnings in the sector continue to lag. How would an improvement in yields and profitability translate into equity market performance?

Reaching healthier tourism earnings would be a clear positive for the share market. A shift toward higher-yield tourists would directly improve earnings across the hotel and broader leisure sector, forming the first layer of impact. Beyond that, increased local spending would support SMEs in tourism-driven regions, contributing to wider economic growth. Over the longer term, stronger returns would encourage fresh investment in resorts, hotels and other supporting infrastructure. When the right mix of tourists is achieved, it creates a virtuous cycle; better earnings attract new investment, which in turn enhances the sector’s appeal and drives further demand.

In addition, a strategic shift toward higher-yield tourism helps ease the strain caused by over-tourism. By prioritizing value over volume, existing attractions, particularly wildlife and environmentally sensitive areas, are less likely to come under undue pressure, supporting more sustainable long-term growth for the sector.

Q4. Compared with five or ten years ago, discretionary spending on entertainment has expanded significantly. How do you view this trend, and does it have investment implications?

Compared to five or ten years ago, Sri Lanka’s entertainment landscape has expanded significantly, adding an important new dimension to the tourism offering. While the country has always been richly endowed with natural assets, pristine forests and wildlife, beaches for surfing and water sports, and a strong foundation for cultural and wellness tourism, entertainment was an area where we historically lagged. As the country opened, this gap has narrowed, and developments such as City of Dreams Colombo have taken the sector to an entirely new level.

For large-scale international events, market size is critical. When we look at global tour circuits in Asia, most artists typically stop in cities like Tokyo, Seoul, Singapore, Bangkok, or Jakarta, with South Asia often overlooked. Sri Lanka, however, is geographically well positioned to change this dynamic. Much of South Asia and Southeast Asia lies within a four- to five-hour flight window, making the country a practical and attractive stopover for concerts and major entertainment events tied to long weekends.

Singapore offers a useful comparison; it does not market itself solely to its domestic audience but positions itself as a hub for the wider ASEAN region. Sri Lanka could adopt a similar strategy, offering a compelling destination with regional market potential, particularly among audiences from India and neighbouring countries. While City of Dreams Colombo appears to be targeting the high-end Indian market, this momentum needs to be supported by a coherent and consistent national tourism campaign that positions Sri Lanka as the region’s go-to stopover for major entertainment experiences.

Q5. How have regulatory developments influenced market behaviour and investor confidence?

Markets respond best to policy continuity and predictability. Investors are less concerned about perfection and more focused on consistency. In that respect, recent developments have been broadly constructive. Policy direction has remained largely aligned with IMF commitments, and progress on certain reform initiatives has helped reduce uncertainty and anchor expectations.

From a market perspective, regulators have continued to strengthen investor safeguards. Efforts around investor education and awareness have been particularly commendable and should remain a priority. Over time, this helps position equities as a credible and transparent avenue for long-term wealth creation rather than a speculative alternative.

Another positive has been the relatively swift action taken to alert the public to illegitimate investment schemes and misleading platforms. Proactive enforcement plays a critical role in protecting retail investors and maintaining trust in the formal capital market ecosystem, particularly as participation broadens.

Q6. When compared with more developed markets such as the US or UK, what changes would you like to see from Sri Lanka’s capital market ecosystem?

The most immediate opportunity lies in investor awareness and financial literacy. Despite recent market growth, participation remains limited. A meaningful evolution of capital markets requires a financially informed investor base. Today, a large share of household and retirement savings remains concentrated in bank deposits, reflecting both risk aversion and limited market understanding.

Collaborative initiatives involving the SEC, CSE, and market intermediaries could significantly improve financial literacy in a cost-effective way. This would support greater direct and indirect retail participation and gradually unlock long-term savings for productive capital formation.

Mutual funds/Unit trusts also have scope to play a larger role. They provide smaller investors with professional management and diversification while reducing the burden of tracking markets. As pooled vehicles, they can act as an important bridge between retail savings and capital markets.

Market depth is another key area. Expanding the listed universe is essential, and efforts in this direction are already underway. Beyond that, there is value in creating structured support systems to help local enterprises prepare for listing, particularly around governance and disclosure. Listing costs, which can run into mid- to high-single digits of offer size, and complex approval and reporting processes are additional areas where simplification and streamlining could encourage participation.

Finally, product diversification matters. CSE has introduced several new products on the debt side over the past couple of years. There’s been efforts made to launch Real Estate Investment Trusts (REITs) and potentially looking at some other derivative products as well. These efforts need to materialize in order to broaden investment options and deepen market engagement.

Q7. In terms of interest rates and investment returns, how does Sri Lanka compare with global markets?

For most local investors, access to global markets remains limited, so the comparison is best made within the domestic context. Historically, falling interest rates tend to support equity markets, as capital gradually shifts away from fixed income toward assets with higher return potential. While equities carry higher risk, they also offer greater scope for long-term wealth creation.

There is also a clear tax advantage in favour of equities. Capital gains on listed shares are tax-exempt, while dividends are subject to a final withholding tax of 15%. In contrast, interest income faces a 10% withholding tax and can rise to a marginal income tax rate of up to 36%, depending on the individual’s income levels.

Market performance has also been supportive. The All-Share Index gained close to 40% last year, making it one of the top-performing markets in Asia. While such returns are unlikely to be repeated, a more sustainable 15–20% upside appears reasonable in the current year. This compares with fixed deposit rates of around 8–9%. After accounting for inflation and taxes, real returns on deposits often compress to the low single digits.

On a risk-adjusted, real return basis, equities therefore continue to offer an attractive proposition, particularly for investors with longer time horizons. Selective stock picking can further enhance returns relative to the broader index.

Q8. Does international developments or global market events have an impact on the Sri Lankan market? Could you cite any examples?

Sri Lanka is not insulated from global developments. For example, proposed US ‘reciprocal’ tariffs had a negative impact on export-oriented sectors, particularly apparel companies with significant US exposure. Major trade policy revisions or rollbacks can create volatility as markets adjust expectations.

Global interest rate cycles also matter. Lower rates in developed markets often encourage investors to seek higher returns in emerging and frontier markets, supporting foreign inflows. Conversely, tighter global financial conditions can reduce risk appetite and weigh on participation.

Energy markets are another critical factor. Oil prices directly affect fuel costs, inflation, and external balances. Disruptions to global supply chains, as was the case with the Suez Canal disruptions in September-2025, can have tangible impact on local markets.

Overall, global developments influence the local market through trade, capital flows, and commodity prices, reinforcing the need for investors to remain attentive to external signals.

Q9. What foundational knowledge or skills should a Gen Z beginner have before entering the stock market?

The starting point is genuine interest. Without curiosity about how markets and businesses work, investing quickly becomes mechanical and unsustainable. In today’s social media environment, there is no shortage of financial content, and some of it can be useful. That said, everything should be verified through official or credible sources. Investors should also be aware that only licensed investment advisors are permitted to provide specific investment recommendations.

A related risk is the proliferation of scam platforms and schemes, often structured like multi-level marketing models. Some even claim to offer overseas equity exposure through complex instruments such as contracts for difference. Regulators have issued repeated warnings on these, and the safest approach is to deal only with licensed intermediaries, regulated stockbrokers on the Colombo Stock Exchange or approved mutual funds/unit trusts.

Independent thinking is critical. Avoid following celebrities or market hype. Instead, focus on understanding businesses. Start with the basics: what a company does, how it makes money, and where its risks lie. Reading the Chairman’s and CEO’s messages in annual reports, along with the Business Overview and Management Discussion and Analysis sections, provides valuable context. A basic grasp of financial statements: the income statement, balance sheet, and cash flow statement, also goes a long way.

Staying informed matters. Follow industry developments and make use of freely available resources such as broker research, market updates, and educational channels. At HNB Stockbrokers we share our research material across our WhatsApp channel and other social media platform. These help build perspective over time.

Q10. What is the difference between investing through a stockbroker and using unit trusts, and is it possible to invest directly in the CSE?

Investors cannot trade directly on the Colombo Stock Exchange. All transactions must go through a licensed stockbroker. Investing via a stockbroker offers direct exposure to equities. An investor opens a Central Depository System (CDS) account and can buy or sell shares through an online platform or with the support of an investment advisor. Stockbrokers also provide research reports, sector insights, and market updates that help investors stay informed.

Unit trusts, in contrast, offer an indirect and more passive route. Investors place money into a fund rather than selecting individual stocks. Funds pool capital from multiple investors and invest according to a defined mandate. While many local unit trusts focus on fixed income, there are equity-oriented and sector-specific funds as well. Returns are reflected through changes in the unit price, based on the underlying portfolio performance.

Fee structures differ meaningfully. Direct equity investing involves a brokerage fee only. Unit trusts typically carry management, trustee, and custodian fees, and some may also apply entry or exit charges.

Q11. Are there any registration fees, entry costs, or minimum investment requirements for stockbroking beyond standard trading fees?

There are no registration or entry fees for opening a stockbroking account. The primary cost is the brokerage fee, which is a fixed 2.24% on a round-trip basis (covering both buying and selling) and is deducted automatically. This structure is uniform across brokers.

Minimum investment requirements vary. At HNB Stockbrokers, the starting threshold is LKR 100,000. This is practical, as a reasonable capital base is needed for returns to be meaningful in absolute terms. Other brokers may have lower or no minimums, depending on their client focus.

Q12.  For a complete beginner, which sectors or practical steps would you recommend to begin investing and build gradually over time?

The most important step is simply to begin. Many investors delay waiting for the “right time,” but investing is a process that benefits from experience and discipline rather than perfect timing. Starting early, or starting at all, matters more than initial precision.

That said, investors should only commit capital they will not need in the short term. Building a basic financial buffer is essential. Emergency savings and near-term obligations should be addressed before allocating money to equities.

A medium- to long-term mindset is equally important. Staying invested allows time to work in your favour, particularly through compounding. In practice, time spent in the market tends to matter more than trying to predict short-term market movements.

From a sector and stock selection perspective, beginners may want to start with large, established companies. Blue-chip stocks such as leading banks or diversified conglomerates tend to offer relative stability, stronger governance, and better disclosure. An alternative approach is to focus on companies with simple business models, firms with one or two clear revenue drivers are often easier to understand than complex, multi-layered structures.

Learning should run in parallel with investing. Annual reports are a good starting point. It helps investors understand how companies generate revenue, allocate capital, and manage risks. Broker research reports and market updates also provide useful context and help investors connect company performance with broader industry trends.

Ultimately, investing is less about short-term outcomes and more about building a disciplined process. Markets will move through cycles, policies will evolve, and global events will create volatility. What endures is the value of informed decision-making, patience, and consistency. For investors at any stage, developing a habit of learning, questioning assumptions, and focusing on long-term fundamentals provides a strong foundation for navigating uncertainty and participating meaningfully in capital markets.