Phoenix rising: How Colombo Stock Exchange symbolises nation’s remarkable resurrection

Success will require both Government and citizens to embrace a shared vision — supporting reforms, backing key sectors, and investing in the nation’s future

•  All Share Price Index growth: 10,119 points or 93% gain post Presidential election
• Eight continuous quarters of economic growth, last quarter 4.9%
• Market PE stands at 9.2, highly undervalued compared to regional peers

To truly understand the story of a nation, one need not look further than the pulse of its stock exchange. It is a living, breathing entity that discounts the future, processes the present, and is invariably haunted by the ghosts of the past. For 16 tumultuous years, the Colombo Stock Exchange (CSE) has been the most honest narrator of Sri Lanka’s modern saga—a tale of euphoric triumph, devastating despair and now become the forward barometer of Sri Lanka’s economic rebirth.

In exactly one year since the Presidential elections, the ASPI has gained more than 90%, gaining 10,119 points from 10,966 to 21,085 as of 19 September 2025.

Market capitalisation has grown by 85% from Rs. 4.045 trillion to Rs. 7.479 trillion. This 3.434 trillion in wealth creation in one year, in USD terms is $ 11.4 billion, which works out to be almost four times the total bailout package by the IMF which is paid out in four years.

Listed companies have cumulatively brought in profits of 800 billion for the last four quarters as well.

But these numbers, impressive as they are, represent more than a rally. They signal a country positioning itself for the most decisive transformation in its modern history.

What lies ahead is even more consequential. With the IMF program giving us much needed discipline, stability and relief, we have come out strong out of one of Sri Lanka’s worst financial crisis. Ensuring we carry on with these reforms and turning stability into growth is what we need to ensure going forward.

A recovery built on discipline

Sri Lanka’s present market rally cannot be understood without recalling the depths of the 2020–2023 collapse. Years of populist fiscal policies, mounting debt, and policy missteps culminated in sovereign default, currency freefall, and inflation peaking near 70%. The ASPI lost more than 80% of its value in dollar terms, foreign investors fled, and public confidence evaporated.

Turning the crisis around required continuity, discipline, and political commitment across three successive Governments. The administration of 2022 began tough stabilisation measures: fuel and electricity prices were aligned to cost-recovery, taxes were increased, and monetary tightening brought inflation down from its peak. The Government in 2023 continued this path, negotiating and implementing the IMF Extended Fund Facility, restructuring debt, and rebuilding reserves while maintaining fiscal discipline. By late 2024, President Anura Kumara Disanayake’s administration took the reforms further, ensuring strict adherence to IMF program targets, completing successive reviews, and restoring confidence in economic governance.

The results are tangible: gross reserves rose from under $ 100 million to over $ 6 billion, the primary balance shifted to a surplus, and investor confidence returned. The economy saw eight successive quarters of growth in GDP, culminating in 4.9% as of the last quarter. The Central Bank, now firmly independent, cut policy rates, halted money printing, gave stability to the currency, all factors which helped the economy and the market to take off.

Unlike previous rallies, this recovery rests not on short-term optimism but on a disciplined, multi-government implementation of structural reforms — proof that Sri Lanka can stabilise and grow even after deep crisis.

The past as lessons for the future

Sri Lanka’s path to this moment was anything but linear. The CSE has lived through euphoric booms, painful crashes, and outright collapse. Each cycle carries a lesson — and together they explain why today’s recovery has deeper roots.

Lesson 1: Optimism without discipline is unsustainable (2009–2011)

ASPI from 1841 to 7811. Up by 5,971 points, 325%

Market PER 5.4 to 29.5

Market Cap 1.1 trillion to 6.7 trillion

Company Earnings 120 b to 225 b

The post-war boom brought immense optimism. The ASPI quadrupled, banking and tourism stocks soared, and investor confidence surged as the country anticipated rapid economic integration and infrastructure development. Yet the rally was fuelled largely by easy money, accommodative monetary policy, and speculative enthusiasm rather than deep structural reform. Valuations became stretched, credit growth accelerated, and sectors like construction and banking began showing signs of overheating. By 2011, the bubble had burst — the market corrected sharply, illustrating a fundamental truth: optimism alone, without disciplined policy, regulatory oversight, and sustainable earnings growth, cannot produce lasting market performance.

Lesson 2: Populism creates fragile rallies (2015 & 2019–2020)

Political change sparked bursts of market euphoria, but these were often short-lived. In 2015, the promise of good governance and international engagement lifted markets temporarily. The 2019–2020 period saw aggressive fiscal stimulus — VAT and income tax cuts, unfunded spending — which pushed the ASPI up by 20% in just months. Yet these gains were unsustainable: Government revenue collapsed, debt sustainability was undermined, and when COVID-19 struck, the fragile economic foundation crumbled. The key lesson is that rallies based on short-term populism, without structural reforms, leave economies vulnerable to shocks and investors exposed to avoidable risk.

Lesson 3: Post-COVID rallies are fragile without strong fundamentals (2020–2021)

ASPI from 4,200 to 13,500. Up by 9,300 points, 220%

Market PER 10- 15

Company Earnings 222 b to 419 b

After the initial shock of COVID-19, global markets rebounded rapidly on stimulus, liquidity injections, and optimism about vaccines. Many countries sustained these rallies due to strong fiscal buffers, resilient domestic demand, and solid corporate earnings.

Sri Lanka, however, could not maintain its post-COVID recovery. The economy entered the pandemic with weak fundamentals: prior populist measures had hollowed out government revenue, foreign reserves were critically low, and key sectors remained vulnerable. Tourism, a major foreign exchange earner, collapsed due to border closures. Exports and industrial production were disrupted by supply chain issues. In addition, the Government’s abrupt nationwide ban on chemical fertilisers and pesticides in 2021 sharply reduced agricultural output, particularly rice and tea, further depleting foreign currency earnings and driving up import costs.

As a result, the ASPI’s early post-pandemic gains, initially buoyed by liquidity, quickly evaporated. Investor confidence faltered, foreign outflows resumed, and domestic markets remained highly volatile. The lesson is clear: short-term rallies cannot be sustained without robust economic foundations and policy foresight.

Crisis as opportunity: How challenges create winners

Periods of economic or systemic crisis are often viewed purely as times of risk and loss. Yet crisis also create unique opportunities for those able to adapt, innovate, or capitalise on structural shifts. In Sri Lanka, both the COVID-19 pandemic and the subsequent economic crisis illustrated this vividly — across multiple sectors and listed companies.

• Healthcare and essential services: During the COVID-19 pandemic, hospitals, local supermarkets, and logistics companies experienced increased demand. Companies that could efficiently supply goods and services to households and businesses found strong revenue growth, even amidst a broader economic contraction.
• Energy and agriculture: Amid the economic crisis and import restrictions, energy companies gained opportunities to restructure operations and improve efficiency. Fertiliser companies profited as domestic demand shifted due to restrictions on imports, highlighting how regulatory or policy changes can create temporary advantages for domestic producers.
• Manufacturing and exports: Import restrictions boosted sectors producing tiles, cables, and other essential manufactured goods, while exporters benefited from currency depreciation and global demand. Companies earning foreign currency or operating internationally saw windfalls as the rupee weakened.
• Financial sector: Rising interest rates favoured Primary Dealers PD), and banks benefited from the restructuring of impaired loans, generating substantial write-backs and profits. Later, as rates fell, highly geared diversified holding companies gained from lower borrowing costs, enabling expansion or refinancing.
• Automotive and related industries: The reopening of vehicle imports benefited listed companies in car sales, leasing, insurance, and auto services, creating strong revenue streams where activity had been dormant.
• Investment and equity sectors: The stock market surge provided gains for investment companies with equity exposure, while privatisations and IPOs created new entry points for both institutional and retail investors.
• Tourism and hospitality: Hotels and connected industries, once stagnant, saw renewed interest as political stability and marketing restored visitor flows to record numbers, boosting both revenue and asset valuations.
• Construction and real estate: Deferred projects from prior years resumed, driving construction activity and cash flows. Rupee depreciation and inflation increased construction costs, while land and property revaluation lifted asset bases for listed real estate companies.
• Policy and regulatory environment: As VAT and corporate taxes were rationalised and enforced, an even playing field emerged, favouring listed companies with stronger compliance and transparency, giving them competitive advantages over smaller or informal operators.

While many of these opportunities may be temporary, their impact is lasting. Short-term gains in revenue or profit often translate into improved cash flows, stronger balance sheets, and greater operational flexibility, putting listed companies in a much better position to weather future challenges. By capitalising on structural shifts, regulatory changes, and market disruptions, businesses not only survive crisis but also emerge stronger, more resilient, and strategically positioned for long-term growth.

Why this time is different

 A bull market built on stronger foundations

Unlike past rallies, the current bull market in Sri Lanka rests on durable and structural foundations rather than short-term optimism or speculative flows. Four key pillars underpin this sustainability:

1.Political stability with a decisive mandate

The government enjoys a clear parliamentary majority, which has reduced policy uncertainty that plagued previous administrations. This stability allows for consistent implementation of reforms and long-term planning. Investors now have confidence that policies will not be reversed abruptly, reducing perceived political risk and encouraging both domestic and foreign investment.

2.Economic reforms anchored by IMF credibility

The ongoing IMF program has provided an anchor of credibility for macroeconomic policy. Fiscal discipline, debt restructuring, and monetary prudence have rebuilt reserves and stabilised the currency. For instance, the opening of vehicle imports saw more than $ 1.5 billion in foreign exchange outflows, without triggering major rupee depreciation. Export-oriented companies, financial institutions, and listed corporates are all operating in a more predictable and supportive environment.

3.Governance improvements restoring trust

State-owned enterprises that were previously loss-making have largely been turned around or restructured to reduce fiscal burden. Stronger transparency, enforcement of rules, and anti-corruption measures have created a “governance premium” for listed companies, boosting investor confidence. Improved tax collection, broader coverage of VAT and corporate taxes, and stricter compliance enforcement have created a more level playing field for companies operating in the formal economy.

4.Market liquidity driven by strong earnings, not speculation

Unlike past rallies fuelled purely by liquidity or hype, the current surge is supported by earnings growth, cash flow recovery, and operational improvements across sectors. Banks, export companies, tourism and hospitality, construction, and investment firms are benefiting from a combination of stabilised macroeconomic conditions and improved corporate performance. Strong fundamentals have attracted both domestic institutional investors and returning foreign portfolio investors, creating deep and resilient market liquidity.

The result is a market that is less prone to sudden crashes and more reflective of sustainable value creation. Companies are not just benefiting from short-term price gains; they are better capitalised, more profitable, and positioned to weather shocks. This combination of political certainty, credible reform, improved governance, and earnings-driven liquidity represents a structural shift in Sri Lanka’s capital markets, marking a departure from the boom-and-bust cycles of the past.

Beyond the highs: Sri Lanka’s next phase of growth

Even as the ASPI reaches record levels, the fundamental story suggests further upside. The market is hitting all-time highs, yet valuations remain moderate by historical and regional standards: the current price-to-earnings (PE) ratio stands at only 9.2, compared with a historical average of nearly 12, while regional peers trade significantly higher. Multiple structural, policy, and investment developments indicate that the market is entering a phase of sustainable growth, built on real economic activity rather than short-term speculation.

1.Port City poised to take off

Nearly a decade of planning and approvals completed; expected to attract FDI, create high-value jobs, and boost real estate, services, and logistics.

2.Privatisation of SOEs

Outright sales, listings, or partial divestments to reduce fiscal burden, improve efficiency, and unlock investment opportunities.

3.Infrastructure and construction revival

Public and private projects, including airports, highways, schools, and housing developments, driving cash flows and valuations for listed companies.

4.Foreign direct investment and strategic projects

Projects like Sinopec LPG, renewable energy, Kerawalapitiya phase 3, and electricity grid links to India enhancing energy security and industrial growth.

5.Credit rating upgrades and investor confidence

S&P upgraded Sri Lanka to CCC+; further upgrades expected, attracting foreign inflows and encouraging EPF/ETF re-entry.

6.Trade and market openness

Pursuit of FTAs and international partnerships to boost exports, foreign inflows, and listed company growth.

7.Digitalisation and technology adoption

Expansion of e-governance, fintech, online retail, and digital payments creating efficiency, transparency, and new investment opportunities.

8.Liquidity and earnings-driven market growth

Supported by real earnings, cash flow improvement, and institutional participation; expected inflows from privatisations, FTAs, and mega-projects to sustain liquidity and valuation growth.

The question now is: could this be Sri Lanka’s decade? After years of setbacks, the country has a chance to translate recent reforms into sustained, exponential growth. With India booming next door, strategic projects underway, privatisations and FDI poised to accelerate, and the Sri Lankan spirit ready to rise, there is a real opportunity to seize this moment.

Building foundations for a deeper market

• Demutualisation of the Colombo Stock Exchange – Essential step to modernise governance and improve market accessibility.
• Extension of plantation lease agreements – Provides long-term stability for agribusiness investments and listed plantation companies. Listed companies need direction on leases to go forward on replanting and strategic business plans
• Approval for palm oil cultivation – Long overdue and no direction yet
• Policies and regulations to enable EPF/ETF re-entry into the market – Creating a framework for these large institutional investors to actively participate.

Currently holding ~ Rs. 5 trillion under investment, largely inactive in equities over the past decade. Their existing Rs. 88 billion equity investment has now appreciated to nearly Rs. 200 billion, demonstrating the potential impact if they increase market activity.

Conclusion: Could this be Sri Lanka’s decade?

The journey of the Colombo Stock Exchange from 2009 to 2025 has been defined by volatility, crisis, and hard-won lessons. But the story today is different — it is about discipline, resilience, and opportunity. Sri Lanka has demonstrated that when policy is consistent, institutions are strengthened, and governance is restored, the market can recover and grow.

The question now is: could this be Sri Lanka’s decade? After years of setbacks, the country has a chance to translate recent reforms into sustained, exponential growth. With India booming next door, strategic projects underway, privatisations and FDI poised to accelerate, and the Sri Lankan spirit ready to rise, there is a real opportunity to seize this moment.

Success will require both Government and citizens to embrace a shared vision — supporting reforms, backing key sectors, and investing in the nation’s future. Furthermore, with just 50,000-100,000 people actively participating in the stock market, it is an opportunity for many more to take part in both the nation’s rise as well as be part of this wealth creation that is to happen. The Colombo Stock Exchange’s spectacular rise is not just a financial milestone; it is a symbol of what is possible when confidence, discipline, and collective will converge.

A phoenix may rise from ashes many times, but the true achievement is learning how to soar — together. 

(The writer is the Group Chairman of Almas Holdings, a diversified investment conglomerate with substantial investments in the Colombo Stock Exchange. With four decades of experience in local and international equity markets, he is a seasoned investor and market strategist, looking at long term wealth creation.)