Retail Rally Lifts Colombo as Capital Goods Drive Modest Market Gains

Sri Lanka’s Colombo Stock Exchange edged higher on Thursday, buoyed by retail-driven activity in capital goods and diversified financial stocks. Despite lower participation from high net worth investors and weaker bank earnings, the ASPI and S&P SL20 posted modest gains amid cautious optimism.

Sri Lanka’s equity market edged into positive territory on Thursday, as retail investors propelled gains in capital goods and diversified financial counters, helping the Colombo Stock Exchange close modestly higher despite lingering volatility and subdued participation from high net worth individuals.

By the end of trading, the All Share Price Index (ASPI) had risen 0.33 per cent, adding 78.13 points to settle at 23,781.23. The more liquid S&P SL20 also advanced, climbing 0.37 per cent, or 24.90 points, to close at 6,710.17. The uptick, while measured, offered a measure of reassurance to investors navigating a market that has seen sharp swings in recent sessions.

Market watchers attributed the day’s gains largely to renewed retail enthusiasm, particularly in counters linked to infrastructure, construction and diversified holdings. Ranjan Ranatunga, Assistant Vice President of Research at First Capital, observed that the tone of the session marked a contrast to the choppiness seen earlier in the week.

“We’re seeing a bullish market today amidst the volatility of the market over the past few days,” Ranatunga said. “Most activity is seen from retailers.”

That retail-driven optimism was evident in the performance of several heavyweight counters. John Keells Holdings emerged as one of the top positive contributors to the ASPI, closing at Rs.22.80. The diversified conglomerate, with interests spanning property, transportation, leisure and consumer foods, often serves as a bellwether for broader market sentiment.

Also among the leading gainers was Hayleys, which finished at Rs.244.75. With significant exposure to sectors including agriculture, manufacturing and logistics, Hayleys’ advance underscored the day’s appetite for capital goods and industrial plays. Melstacorp added further support, closing at Rs.183.50 and reinforcing the strength of diversified financial and consumer-linked counters.

In contrast, banking stocks exerted a drag on the broader index. Hatton National Bank was the most significant negative contributor to the ASPI, closing at Rs.450.75, down 1.04 per cent. The decline followed the release of its quarterly financial results, which showed a 31 per cent fall in profit for the December 2025 quarter, amounting to 14.12 billion rupees.

The bank’s earnings report reflected continued pressures in the financial sector, including tighter margins and the lingering impact of economic adjustments. Despite the drop in profits, Hatton National Bank announced a total dividend of Rs.20.00 per share, comprising Rs.15.00 per share in cash and Rs.5.00 per share as a scrip dividend, applicable to both voting and non-voting shares. The dividend declaration signalled confidence in its capital position, though investors appeared cautious in their immediate reaction.

Adding to the subdued tone in banking shares, the Bank of Ceylon reported earnings of 20.69 billion rupees for the December 2025 quarter, representing a 19 per cent decline. While still profitable, the reduction in earnings highlighted the headwinds facing Sri Lanka’s financial institutions as they adapt to a shifting macroeconomic landscape.

Turnover for the session reached 4.02 billion rupees, with capital goods accounting for the lion’s share at 1.32 billion rupees. The prominence of this sector in overall turnover reflected heightened investor interest in infrastructure-related counters, as expectations build around potential public and private sector projects aimed at sustaining economic recovery.

Ranatunga noted that, despite the positive close, overall turnover was lower than in some previous sessions. “Turnover is basically down due to not much high involvement from high net worth investors,” he said, pointing to the relatively muted participation of institutional and large-scale investors.

The relative absence of high net worth buying left the market more sensitive to retail flows, amplifying moves in selected counters while limiting broader-based momentum. Nonetheless, the steady gains in both the ASPI and the S&P SL20 suggested that smaller investors were willing to step in, taking advantage of recent price corrections.

Interest was also observed in the Softlogic Group, alongside counters in the construction and consumer sectors. The renewed focus on these areas may reflect expectations of improving domestic demand and infrastructure activity, as well as the search for defensive plays amid ongoing economic recalibration.

The day’s performance comes against a backdrop of gradual stabilisation in Sri Lanka’s financial system following a period of acute stress in recent years. While macroeconomic indicators have shown signs of improvement, corporate earnings remain uneven, and investor confidence is still rebuilding. As a result, market rallies have tended to be incremental rather than exuberant, driven by stock-specific factors and sectoral rotations rather than sweeping sentiment shifts.

Thursday’s session encapsulated this dynamic. Gains were modest, leadership was concentrated in select conglomerates and capital goods stocks, and banking shares reflected earnings-related caution. Yet the overall direction was upward, and the indices managed to hold on to their advances through the close.

For many retail investors, the current environment presents both risk and opportunity. Price volatility offers entry points, but corporate results and sectoral headwinds demand careful stock selection. The divergence between capital goods strength and banking weakness illustrates the importance of differentiating between sectors that are poised to benefit from domestic investment trends and those still adjusting to financial pressures.

Looking ahead, market participants will be watching for further corporate earnings releases, signals of institutional re-engagement, and any policy developments that could influence liquidity and credit conditions. The sustainability of the recent uptick may hinge on whether high net worth and institutional investors return in greater numbers, providing depth and resilience to trading volumes.

For now, however, the Colombo bourse appears to have regained a tentative footing. Retail investors have stepped forward to underpin prices, capital goods counters are enjoying renewed attention, and the benchmark indices have inched higher despite the drag from weaker bank earnings. In a market that has weathered considerable turbulence, even a modest rise can carry symbolic weight, signalling cautious optimism as Sri Lanka’s equities navigate the next phase of recovery.