Capitalising on Confidence: Investor expectations from 2026 Budget amidst high-flying CSE

THE upcoming Sri Lanka Budget for 2026 is set to be one of the most closely watched fiscal pronouncements in recent memory. Its significance is amplified by the backdrop of the Colombo Stock Exchange (CSE) reaching all-time highs — a clear barometer of surging domestic investor confidence and a strengthening recovery narrative. As the government steers the nation through the next phase of its economic reform journey, the Budget's proposals will be scrutinised for their ability to sustain capital market momentum and cement long-term macroeconomic stability.

- By Uddeepa Peiris

The all-time high momentum on the CSE

The remarkable ascent of the CSE's All-Share Price Index (ASPI) reflects a confluence of factors: a downward trajectory in domestic interest rates making equities comparatively more attractive, an improving corporate earnings outlook, and a cautiously optimistic sentiment about post-crisis macroeconomic stability.

This rally is not merely speculative; it signals that domestic investors are pricing in the successful continuation of IMF-backed fiscal consolidation and structural reforms. In essence, the capital market is demanding policy certainty and a clear roadmap for growth.

For the market to maintain its upward trajectory and attract long-term foreign capital, the 2026 Budget must deliver clear, consistent, and supportive policies.

1. Policy consistency and fiscal consolidation

The foremost expectation is a steadfast commitment to the agreed fiscal consolidation path. Investors will look for a Budget that targets a sustainable deficit and demonstrates a clear strategy to meet ambitious revenue goals — ideally through improved tax administration and base broadening rather than sudden, disruptive levies. Continuity in fiscal policy remains key to lowering perceived risk.

2. Boost to corporate earnings