Yield-hungry retail rush fuels bourse as risks mount

• According to CDS, the number of new account openings surged to 6,387 in October alone
• Cumulative new accounts for the first ten months of 2025 reached 44,047, dwarfing the 14,062 recorded during the same period in 2024

By Nishel Fernando

Sri Lanka’s dramatic decline in interest rates has triggered a massive migration of capital from safe bank deposits to the stock market, prompting regulators and analysts to advise caution as new entrants navigate an increasingly complex trading environment.

With fixed deposit rates plunging from crisis-era peaks to single digits, the traditional safety net for passive savers has evaporated, forcing a definitive shift in strategy. First Capital Holdings Chief Research and Strategy Officer Dimantha Mathew joined a recent podcast explaining the phenomenon, noting: "When the interest rates were high, investors were chasing after yield... but now that the interest rates have come down significantly, the best alternative liquid product has been the stock market."

The scale of this migration is starkly evident in the latest official data. According to the Central Depository Systems (CDS), the number of new account openings surged to 6,387 in October alone, a more than threefold increase compared to the 1,805 accounts opened in the same month last year. This momentum has been building throughout the year, with cumulative new accounts for the first ten months of 2025 reaching 44,047, dwarfing the 14,062 recorded during the same period in 2024.

The data further indicates that this boom is being driven primarily by local retail investors. In October 2025, local individual account openings hit 5,113, continuing a steady upward trend from just 1,239 in October 2024. 

The value of securities held by local retail investors has nearly doubled over the last year, surging by 84 per cent from Rs. 846.6 billion in October 2024 to Rs. 1.55 trillion in October 2025. This dramatic expansion in the retail asset base suggests that the "yield hungry" investors are not merely opening accounts but are actively deploying significant capital, providing a strong, albeit volatile, floor for the market.  

This massive reallocation of capital is fueling the market’s resilience, which has seen the All Share Price Index (ASPI) repeatedly test the 23,000 level. However, Mathew cautioned that while the trend is positive, the entry of inexperienced investors "chasing yield" creates its own volatility.

"You see a significantly large new set of investors coming into this capital market space," he noted, warning that "financial literacy levels are pretty low." This lack of sophistication means many new entrants may not understand that "valuations are climbing and are not too cheap," requiring them to be far more selective than in the early stages of the rally.

The influx of new retail participants has also drawn the attention of regulators, who are keen to ensure a fair trading environment. The Securities and Exchange Commission (SEC) recently advised caution regarding the potential recurrence of manipulative practices seen in previous market cycles.

SEC Chairman Prof. Hareendra Dissabandara highlighted that authorities are vigilantly monitoring for any organized attempts to influence share prices through social media platforms such as WhatsApp, YouTube, and X. The regulator’s focus is on protecting new investors from schemes that could artificially inflate valuations, urging the public to rely on licensed advice rather than informal tips to avoid potential capital erosion.

Despite the risks, Mathew argues that the market's fundamentals remain grounded. He further noted that while his team had anticipated a slowdown, the market’s momentum has been surprisingly resilient, supported by a massive creation of retail wealth.

Official data paints a clear picture of this growing financial power. According to CDS , the value of securities held by local retail investors has nearly doubled over the last year, surging by 84 per cent from Rs. 846.6 billion in October 2024 to Rs. 1.55 trillion in October 2025. This dramatic expansion in the retail asset base suggests that the "yield hungry" investors are not merely opening accounts but are actively deploying significant capital, providing a strong, albeit volatile, floor for the market.

Mathew pushed back against the notion that the bourse is overheating, stating: "The market Price-to-Earnings (P/E) ratio remains at around 11.5, which we think is a fair value. It is not too expensive when compared globally."

He further noted that while his team had anticipated a slowdown, the market’s momentum has been surprisingly resilient. "We were expecting somewhat of a wait-and-see approach... However, the market has not followed this trend and continues to inch upwards," Mathew observed, attributing this defying of gravity to the sheer volume of funds unlocking from low-interest deposits.

Mathew termed his outlook as "cautiously optimistic," reminding investors that the country's economic recovery is not yet bulletproof. "We are not completely out of the woods as yet," he warned, adding that "a wrong move and a couple of months in that direction could bring us back straight away into the place where we were a couple of years ago."

For those unable to navigate these daily fluctuations or analyze reforms, he strongly recommended professional management, advising: "If you don't have time to educate yourself... get the support of the experts and invest in unit trusts," rather than risking capital blindly in a high-value market.