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Jul 14 2026
30First Capital Holdings PLC, a subsidiary of JXG (Janashakthi Group) and a key player in Sri Lanka’s capital markets landscape, has maintained its outlook for Sri Lanka’s fixed income and equity markets, forecasting stable bond yields through 2026 while identifying potential opportunities emerging in 2027 as economic conditions improve.
According to the First Capital Mid-Year Outlook 2026, bond yields are expected to remain within current forecast ranges during 2026, with a 50 basis point premium introduced to the longer end of the yield curve in the first half of 2027 due to continued concerns surrounding debt sustainability and the pace of structural reforms.
First Capital expects inflation to average 6% in 2026, with recent monetary policy tightening by the Central Bank of Sri Lanka supporting inflation stability. However, the higher interest rate environment is expected to weigh on economic growth and credit expansion, creating potential room for a rate reduction during the first half of 2027.
Commenting on the outlook, Dimantha Mathew, Chief Research & Strategy Officer of First Capital Holdings PLC, said, "The recent tightening in monetary policy has helped stabilise inflation expectations, although it is expected to moderate economic momentum in the near term. We believe investors should remain positioned within shorter tenures, providing a dual opportunity with potential capital gains as yields are expected to normalise and move down towards our targeted bands, whilst attractive carry opportunities remain available for investors. While progress on reforms remains critical, improving macroeconomic stability could create favourable conditions for market recovery over the medium term."
First Capital forecasts the Average Weighted Prime Lending Rate (AWPR) to remain between 10.0%–11.0% during the second half of 2026, before easing to 9.5%–10.5% in the first half of 2027, supported by moderating GDP and credit growth and stabilising liquidity conditions.
The Sri Lankan Rupee is expected to remain within a range of LKR 325–335 against the US Dollar during the second half of 2026, with a gradual depreciation to LKR 335–345 anticipated in the first half of 2027 as external pressures and foreign exchange dynamics evolve.
In equities, First Capital maintains its 2026 All Share Price Index (ASPI) base case fair value target of 20,500 and introduces a 2027 target of 24,500, supported by expectations of softer inflation, earnings recovery, improving liquidity and a gradual easing of monetary policy. Given the expected near-term sideways movement in the market, First Capital recommends a higher cash allocation of 50% to enable investors to capitalise on potential entry opportunities ahead of a broader recovery.
The First Capital Mid-Year Outlook 2026 reflects the institution’s continued commitment to providing research-driven market insights and supporting investors in making informed investment decisions amid Sri Lanka’s evolving economic landscape.
Ends.
About First Capital Holdings PLC
First Capital Holdings PLC is a listed full-service investment institution in Sri Lanka, operating as a primary dealer, corporate finance advisor, wealth manager and stockbroker. With strong emphasis on upholding stability, fostering a competitive advantage and providing an exceptional customer experience, together with the support of JXG (Janashakthi Group), First Capital focuses on staying true to its ‘Performance First’ ethos. With over four decades of expertise in delivering capital market solutions, the credit ratings of First Capital Holdings PLC and its subsidiary First Capital Treasuries PLC have been reaffirmed by Lanka Rating Agency (LRA) at A+ Entity Rating with a Stable Outlook. First Capital Holdings PLC has been recognised as the Leading Investment Banking Firm in Sri Lanka – 2026 at the World Economic Magazine Awards, further reinforcing its position as a trusted leader in the investment banking sector. In 2025, the company became the first investment institution in Sri Lanka to achieve Superbrands status, recognising its strong brand presence and market leadership.
