How can one play the game of equities in Sri Lanka
The Colombo Stock Exchange (CSE) has gained close to 235% since the start of this decade, while the market capitalisation has gained by close to Rs. 6 trillion, indicating that more and more funds and investors are trading in the stock market each year.
New investors entering the stock market have surged rapidly from 2024 to 2025, where new accounts opened with the Central Depository System of the CSE increased from 19,019 in 2024 to 57,456 in 2025.
But how can one create wealth from equities? How can they navigate the ups and downs of the market? How does the new generation look at equities, and is equities a short game or a long game? These questions remain in the mind of potential investors when considering the stock market.
What potential does CSE have?
Speaking to The Morning Money, First Guardian Equities Stockbroker Managing Director/CEO Rohan Goonewardene said that despite the market activity and the market capitalisation having grown exponentially in the last decade, in terms of infrastructure and broadening the market, there is considerably more to go to be anywhere near the potential the Colombo bourse possesses in terms of public interest, accessibility, liquidity and size.
He said that there is an obvious correlation between the size of the market and the size of foreign investors who will look at our market, and that the participation of larger and reputed foreign funds will take the market to another echelon.
“However, to achieve these objectives, a collaborative effort from the brokering, lending, the mutual fund, and the investment banking industries is paramount in taking the equity market forward organically,” he said.
Equities are a more effective way to create wealth
Goonewardene said that he sees equities as the more effective way to create wealth amongst a broad spectrum of citizens in the country belonging to the lower, lower middle, and the upper middle wealth segments.
He said that the development of the wealth/fund/mutual management industries will attract more top talent to it, which will elevate higher returns sustainable over a long period.
He noted that the government-controlled captive funds such as the Employees Provident Fund (EPF) and Employees Trust Fund (ETF) have only a minute percentage of their respective funds in the market, despite equities having outperformed their government securities portfolio severalfold from 2020.
Equities compounding effect better than savings deposits
Speaking to The Morning Money, veteran investor with about 25 years of experience in trading at CSE and Almas Holding Group Chairman Imtiaz Buhardeen said Sri Lanka has a savings culture, where people invest their money in savings accounts and fixed deposits to gain returns.
However, he said that since the economic crisis in 2022, the rates that the banks are offering, the taxes involved, together with the real interest income due to higher inflation, the savings culture has started to fade away.
But he said that the stock market has consistently given good returns to investors regardless of the short-term dips.
Buhardeen entered the stock market at the commencement of CSE in 1985 and has been trading in the market since 1999, and then re-entered the market in 2012.
He has seen the market daily turnover rising from Rs. 20 million to Rs. 10 billion in that period and has been in the market for long-term gains.
He said that the stock market returns have increased by 300-400% in the last 5 years, while some stocks have given even a 1000% return on initial investments.
Therefore, he said that if people are looking to hedge their investments on something better than inflation, they need to start continuously investing in equities while saving for a longer period to reap the benefits of the compounding effect of the equity returns.
He added that in a market like Sri Lanka where the equity market has not yet matured enough, there is always an opportunity for big returns in the long run when the market grows.
Awareness through social media has made equities popular among the young generation
Asha Securities Vice President – Research Arumainayagam Visaashan has conducted a series of domestic investor forums last year, especially in the Northern part of Sri Lanka; and he said some long-term investors have held stock market positions for 10-15 years.
He said that with awareness created mainly through social media, more and more people have considered investing in the stock market, and equity investments have become increasingly popular among the younger generation.
He said that although not everyone has the required financial literacy and market knowledge, due to the awareness and promotions done on equities, people have started to invest.
He noted that in the past, people came to know about the stock market because the companies they were working for issued shares to employees, which allowed them to enter the market and then learn to trade thereafter.
“But nowadays, with the technological evolution and social media, people get more information; they come to the market with a small investment to test it, and whoever feels equity investments are better, continue to trade,” he added.
Visaahan said that in the past, investing a big amount to enter the stock market was the main hurdle for market penetration, but now the stockbrokers encourage the investors to enter the market even with a thousand rupees, so that the investors can feel the taste of equity investments.
The majority of investors are short-term, sentiment-driven
Visaahan said that investors have a mixed approach to equities in Sri Lanka, where some people are sentiment-driven in investment decisions, where they follow the herd mentality, while others regularly contact their advisors and get investment advice on stocks.
Also, he added that there is another group of people who invest in equities for the long term and come back to withdraw them for things like retirement.
But he said the majority of investors are sentiment-driven and look for short-term returns on equities rather than long-term returns.
How should a new investor look at equities?
Buhardeen said that a newcomer into the stock market should always have the view of getting returns in 5-10 years, depending on the investment, and not be looking for short-term gains.
He said that a newcomer should always keep investing a certain amount from their income, while continuing their job or business, and build a reasonable portfolio.
He added that stock market investment is not for the short term but for the long run, and none of the investment advisors advise their clients on short-term returns from the stock market.
“If you see anyone who has made money in equities, they have been invested in the market for at least 10 years to reach that level of wealth creation,” he said.
Moreover, he said that if new investors are not very conversant with the market and do not understand how the market works, they can use unit trusts to invest a certain amount in equities and build a portfolio to get long-term returns.
Short-term return-seeking millennials and Gen Z lose out on equities
Speaking to The Morning Money, CSE Gen Z investor Nabhan Niyaz said that the current generation, which includes Gen Z and millennials, sees the stock market as a typical tool via which they can gain returns in a short-time period.
He said that more than 80% of his colleagues who invest in the stock market also have the same mindset and drop out, thereby not getting amazing returns due to a lack of discipline and motivation.
He said that based on his experience, the main difference between the young investors and the senior investors is that they have a deep understanding of the market (not just mere graphs and basic information) and have discipline, and consistency, and most importantly, they don't take losses and defeats as negatives; they take it as an opportunity to identify and correct their mistakes.
“So, bottom line, most of the young investors see the stock market from the wrong perspective and thereby underperform from what their actual potential is, unless told otherwise, if they are committed to it, which only a few are,” he added.
Niyaz, who is an audit trainee by profession, said that beyond being impatient and emotional, young investors also deal with getting overconfident after a few good trades, falling for social media hype, and being too scared to lose their money, which makes them quit too early, “and without a real goal it becomes really hard to stay consistent because there is nothing to keep them motivated,” he added.
New investors should keep on investing a fixed amount in equities
Buhardeen said, based on his experience, the important thing to keep in mind when investing in equities is to be in the market while consistently investing money and not give in to sentiment-driven selling pressures by selling the portfolio.
He said that if investors give in to selling pressures and wait for the market to go down further to enter the market, they will miss out on gains when the market has a V-shaped recovery.
“If you stay in the market, you will see some short-term dip even up to 20%, but when the market recovers, it is difficult to capture a position to re-enter the market,” he said.
“So ideally, if you are confident about a good company, and feel there is growth, good prospects and management, then it's better to just invest and keep quiet on that, and can make good money in the long term,” he added further.
Only giving in to pressure can make investors lose money in equities
Buhardeen said that the only way investors can lose money in the stock market is under pressure, where one goes for too much borrowing against stocks and ends up getting margin calls and starts selling because the investor does not have control over the portfolio.
He added that another pressure sell is when an investor needs a certain amount from the investment in a certain period of time for purposes such as education fees or other consumption purposes, and ends up selling at that fixed date despite the market being down.
“But if you think of a much longer period, you'll overcome all those things, and eventually, the market will be going up, and you will be making money,” he said.
He said that the best example for this kind of behaviour is the CSE performance seen in April, when the market, despite seeing selling pressures due to incidents in the Middle East, still gained about 1,200 points.
Seek help from advisors but learn the equity trade over time
Buhardeen said that a new investor should definitely seek the services of an investment advisor or a market-experienced person to navigate the stock market in the beginning, but has to learn about the market gradually, so that at some point you can make your own investment decisions.
Moreover, he said that he believes in identifying about 10 good companies to invest in rather than going for diversification and investing in around 40 companies.
He said that investors should readjust their investments once every 6 months or 12 months and try a different set of stocks.