The Colombo Stock Exchange's All Share Price Index (ASPI) is to move flat within the range of 20,500 to 22,500 for the rest of 2026, before gaining bullish momentum in 2027 – when current levels of inflation and OPR are relaxed, alongside an earnings rebound and improved turnover, First Capital Research's (FCR) mid-year outlook for 2026 shows.
"Ceasefire uncertainty, elevated oil prices, moderating earnings, and a tighter OPR should keep ASPI sideways within 20,500-22,500 for the balance of 2026E. Momentum should turn bullish in 2027E on softer inflation, an earnings rebound, partial OPR relaxation, and improving liquidity and sentiment," FCR said.
Further, FCR noted that in accordance with the projected sideways movement in the short-term, it had raised its cash allocation from 35% to 50%, positioning to capitalise on entry points ahead of the 2027 rally expectations.
Between January and February, the ASPI began the year with an all-time high of nearly 23,708 before hitting a peak of 24,006 in February. However, following the Central Bank of Sri Lanka's interest rate hike, the index moderated between 21,700 and 21,800. The last closing value was at 21,697.72, at the end of Friday's trading day.
Acknowledging the research unit's own base expectations for the year, the unit said: "In line with expectations, the ME crisis pushed ASPI to our base case of 20,500 in 1H2026."
On the flip side, FCR stated that its base case target for 2027-end is a 24,500 index value, and a bullish target of 26,500.
Between January and June 2026, though the ASPI underwent high levels of turbulence, the index posted an overall increase in value of 23%.
"Our cautious outlook for the broader market was reflected in the movement of the index as increased uncertainty due to the tensions in the Middle East, coupled with a slowdown in economic growth, resulted in reduced investor confidence," the unit noted.
Towards the end of 2026, FCR anticipates that earnings are to grow by a below-moderate value of 8.2%, down from the corporate profit expansion seen in 2025 at around 25.5%. The projection was maintained based on the margin compression elevated energy costs have induced in the market.
FCR noted that though the mid-June US-Iran ceasefire talks have lowered geopolitical risks in the foreseeable future, the knock-on effects from the earlier disruptions are likely to remain in the near-term.
"The mid-June 2026 US-Iran ceasefire has taken some heat off geopolitical risk, though we expect the knock-on economic effects from the earlier disruption to continue working through the local economy for some time yet," FCR stated.
The US has since resumed targeted airstrikes on Iranian coastal and port cities, and military bases since Wednesday (8), after President Donald Trump declared that the recently signed ceasefire was over.