CSE market cap has surged to an unprecedented Rs. 8 trillion, marking a historic milestone for Sri Lanka’s stock market. The record-breaking performance reflects soaring investor confidence, strong real returns, and macroeconomic stability fueling further growth.
Sri Lanka’s CSE market cap hits Rs. 8T milestone as real equity returns surge 65% in 2025
The Colombo Stock Exchange (CSE) achieved a historic milestone as total market capitalisation surpassed Rs. 8 trillion for the first time, highlighting a 40.48% year-to-date (YTD) growth. According to the Central Bank of Sri Lanka (CBSL) Financial Stability Review 2025, released last week, the country’s equity market has delivered some of its most impressive real returns in recent history.
Inflation-adjusted equity market returns surged 65.1% by August 2025. This marks a sharp improvement compared to 24.8% in 2024 and a negative 5.8% in 2023. Analysts note that the rise in CSE market cap signals a structural recovery in Sri Lanka’s capital markets after years of volatility, with improved fiscal and monetary conditions underpinning investor optimism.
CBSL attributed this performance to strong growth in market capitalisation, continued disinflation, and robust dividend payouts, all of which strengthened bullish market sentiment. Average daily turnover during the first eight months of 2025 climbed to Rs. 4.84 billion, more than double the Rs. 2.24 billion recorded in 2024. This increase in liquidity underscores renewed confidence from both institutional and retail investors.
Valuation metrics also reflect this newfound optimism. The Price-to-Book (P/B) ratio rose from 1.17 at the end of 2024 to 1.41 by the end of August 2025. Meanwhile, the Price-to-Earnings (P/E) ratio stood at 9.81, remaining below both the long-term average of 12.13 and regional market peers. This indicates that despite the rally, there is still room for further upside potential.
Market analysts say the relatively low P/E levels, combined with steady economic stabilization, create an attractive entry point for investors. As inflation pressures ease and the Central Bank maintains a supportive monetary stance, equity valuations are expected to remain compelling through 2026.
The robust performance of the CSE market cap reflects broader macroeconomic shifts. Sri Lanka has experienced easing inflation, a stronger rupee, and a reduction in interest rates, creating favorable conditions for listed companies. Improved profitability across several sectors — including banking, manufacturing, and diversified holdings — has translated into strong earnings growth and higher dividends, which, in turn, reinforced market momentum.
Investor sentiment has also been buoyed by structural reforms in the financial sector and increased participation from foreign funds. As foreign investors return to emerging markets in search of yield, Sri Lanka has benefited from renewed capital inflows. Market strategists suggest that if the current momentum continues, CSE market cap could set new records by mid-2026.
CBSL noted in its report that the low P/E ratio and improved corporate earnings outlook could support further expansion. This aligns with forecasts that see Sri Lanka’s capital markets maturing into a more stable, investor-friendly environment. With increased fiscal discipline and policy clarity, the island nation’s equity markets appear well-positioned to maintain their upward trajectory.
Moreover, the rise in market capitalization and returns also reflects growing investor trust in the Central Bank’s disinflationary policies. This has not only strengthened the macroeconomic outlook but also provided the equity market with a strong foundation for sustainable growth.
Looking ahead, analysts highlight key catalysts that may shape the market. These include expected rate cuts, improving earnings guidance, foreign investor re-engagement, and continued expansion in market depth. If these drivers hold, Sri Lanka could be on track for a multi-year equity bull run, further pushing the CSE market cap to new highs.
In conclusion, the Colombo Stock Exchange’s surge beyond Rs. 8 trillion in market capitalization marks more than just a numerical record; it reflects a transformative shift in sentiment, fundamentals, and market structure. While external risks remain, the combination of strong real returns, undervalued valuations, and improving macroeconomic conditions suggests Sri Lanka’s capital market is entering a new phase of sustainable growth.