Colombo’s All Share Price Index (ASPI) has a potential downside of 18,000 to 19,000 points if global volatility is to continue to persist, and thereby compress valuations to 8x price-to-earnings (PER), First Capital Holdings stated in its latest equity webinar, recently.

The investment institution had further revised its fair value expectations for the ASPI, in view of the ongoing economic repercussions of external shocks materialising. 

“We expect a further rerating as the economic repercussions of the current external shocks become more obvious and more physically felt, and as investors potentially move towards safer assets, given in this landscape of turbulence and uncertainty,” First Capital Research Senior Research Analyst Akna Tennakoon said.

First Capital now projects that the ASPI is to trade within a fair value range of 20,000 to 21,000, with a downside to 18,000–19,000, with a lowered 8x PER. “This rating also warrants a readjustment of our fair value expectations. In our January 2026 report we had an ASPI forecast of 21,000 to 22,000 at 10x PER with an upside potential to reach 24,000 to 25,000 at 12x PER.”

“However, as we have adjusted the valuations for the ASPI, we think that the fair value range for the ASPI would hover somewhere close to 20,000 to 21,000 with a potential downside of 18,000 to 19,000 also possible, if the ASPI trades at a PER of 8x,” Tennakoon said. 

The ASPI has already declined by about 10% since geopolitical tensions began in late February 2026. The index now trades at 10 times PER.

According to Tennakoon, as fixed income yields have been inching higher, equity valuations are to come under pressure and trade at a PER of about 9 times, and if external troubles continue, the PER may come further down to 8 times. 

The valuation adjustment follows a broader downgrade of corporate earnings expectations. First Capital now expects 2026 corporate earnings growth of 8.2%, down from the earlier forecast of 16.6%.

GDP growth for 2026 is expected to moderate to 3–4%, with the Ministry of Finance projecting 2.9%. For investors with funds allocated purely to equities, First Capital advised that reducing equity exposure to 65% and holding the remaining 35% in cash to support rebalancing efforts as market uncertainty keeps volatility high.