Corporate earnings growth Sri Lanka 2026 is expected to decelerate as macroeconomic pressures re-emerge, according to new brokerage research, signalling a more cautious year ahead for listed companies after a strong market rebound in 2025.
Corporate earnings growth Sri Lanka 2026 outlook weakens amid softer demand
Sri Lanka’s listed corporate sector is heading into a more restrained earnings cycle in 2026, with analysts warning that growth momentum seen last year is unlikely to be sustained. After a robust recovery phase that lifted market confidence and valuations, emerging economic headwinds are now expected to temper profit expansion across several sectors.
First Capital Research said corporate earnings growth is likely to slow in 2026 following a sharp rebound in 2025, when profits are estimated to have expanded by around 25 percent. While business conditions have largely stabilised after the country’s recent economic turbulence, the outlook suggests a return to more moderate and selective growth patterns.
The Colombo Stock Exchange delivered gains exceeding 40 percent in 2025, supported by policy stability, improving macro fundamentals and easing inflationary pressures. However, analysts caution that much of this optimism has already been priced in, leaving the market more vulnerable to shifts in economic sentiment during the year ahead.
According to First Capital, economic growth is projected to ease to between 3 and 4 percent in 2026, compared with an estimated 5 percent in 2025. This slowdown reflects tighter fiscal conditions, reduced government spending and a more cautious consumer environment, all of which are expected to influence corporate profitability.
Lower public expenditure is expected to have a knock-on effect on private sector activity, particularly in areas that depend on state-led projects or procurement. At the same time, softer household spending is anticipated as consumers remain sensitive to price pressures, interest rates and income uncertainty, limiting demand growth in discretionary segments.
Although overall business conditions have improved compared with previous years, First Capital noted that weakening confidence and slower momentum in both services and manufacturing could weigh on industrial performance in 2026. This comes despite continued resilience in construction, which remains supported by infrastructure development and select private sector investments.
A further challenge highlighted in the research is rising input costs. Currency depreciation has increased the cost of imports, placing pressure on companies that rely heavily on foreign raw materials or intermediate goods. In addition, the possibility of electricity tariff hikes presents another risk to operating margins, particularly for energy-intensive industries.
These cost pressures may limit the ability of firms to pass expenses on to consumers, especially in a subdued demand environment. As a result, profit margins could narrow even in sectors where revenue growth remains relatively stable.
Against this backdrop, corporate earnings growth Sri Lanka 2026 is expected to normalise to around 17 percent, marking a significant moderation from the previous year’s rebound. Analysts emphasise that this slowdown should not be interpreted as a reversal, but rather as a transition to a more sustainable earnings trajectory.
Importantly, opportunities are expected to remain at a sectoral level rather than being broad-based. First Capital identified construction, tourism and diversified export-oriented businesses as areas that remain relatively well positioned to navigate the changing environment.
The construction sector continues to benefit from ongoing policy initiatives and infrastructure demand, while tourism stands to gain from improving global travel trends and Sri Lanka’s renewed appeal as a destination. Export-focused companies, particularly those with diversified markets and currency hedges, may also find advantages amid exchange rate movements.
Analysts suggest that investors in 2026 will need to adopt a more selective approach, focusing on balance sheet strength, pricing power and cost management capabilities. Companies with strong governance, operational efficiency and exposure to resilient demand drivers are likely to outperform in a slower growth environment.
While the outlook is more cautious, it also reflects a maturing phase of recovery for Sri Lanka’s corporate sector. The shift from rapid post-crisis gains to steadier expansion may ultimately support long-term stability, provided macroeconomic discipline and policy consistency are maintained.
As Sri Lanka navigates 2026, corporate earnings growth will remain closely tied to consumer confidence, fiscal policy direction and external economic conditions. For investors and businesses alike, the year ahead is shaping up to be one of measured expectations rather than exuberant gains.