ASPI could touch 22,000 by 2026: First Capital Research

• Optimistic forecast is underpinned by expectation that market’s price-to-earnings multiple will expand from its current 8.6x to 10.0x
• Rerating anticipated as investors are likely to shift funds from fixed-income and other asset classes into equities
• First Capital forecasts a 25% year-on-year growth in recurrent profits for 2025, followed by another strong year of 16.6% growth in 2026

By Nishel Fernando

The Colombo Stock Exchange (CSE) is on the cusp of a significant rerating, driven by a powerful combination of prolonged low-interest rates and a robust surge in corporate profitability, according to a new mid-year outlook report from First Capital Research. 

The investment firm has introduced a bullish forecast for the All Share Price Index (ASPI), projecting it to reach a target range of 21,000-22,000 points by end-2026.

The optimistic forecast is underpinned by the expectation that the market’s price-to-earnings (PER) multiple will expand from its current 8.6x to 10.0x. This rerating is anticipated as investors are likely to shift funds from fixed-income and other asset classes into equities, in search of higher returns, in a sustained low-interest-rate environment.

First Capital has also upgraded its fair value estimate for the ASPI for end-2025 to a range of 18,000-19,000 points.

A key catalyst for this market re-evaluation is a projected monumental jump in listed corporate earnings. The report forecasts a 25.0 percent year-on-year growth in recurrent profits for 2025, followed by another strong year of 16.6 percent growth in 2026. This marks an expected three consecutive years of double-digit profit growth for Sri Lankan corporates.

The earnings momentum is expected to be broad-based, led by the banking and food, beverage and tobacco sectors. A significant contribution is also anticipated from the capital goods sector, particularly from the commissioning of John Keells Holdings’ (JKH) mega-projects, including City of Dreams Sri Lanka and West Container Terminal.

“Stable growth in earnings of listed banks coupled with the commissioning of JKH’s mega projects are expected to offer the boost to earnings enabling the rerating of the index,” the report stated.

The research highlights that the CSE is currently trading at a considerable discount to its 10-year historical average PER of 12.0x, suggesting significant upside potential. The prevailing low-interest rates are seen as a critical factor that will improve market participation and channel greater fund inflows into the stock market.

Reflecting its bullish stance, First Capital Research is maintaining its recommendation for investors to be fully invested, with an asset allocation of 100 percent in equities and 0 percent in cash.