Is the CSE bull market over? How this rally differs from 2010

Two years of boom, ten years of waiting

Put the ASPI on a log scale, where equal heights mean equal percentage moves, and its history since 2008 has four parts. The index more than quadrupled from the end of 2008 to the end of 2010. It then spent a decade going sideways, ending 2020 about 2% above where it ended 2010. It rose about 80% in 2021, fell hard in the 2022 crisis, and from 2023 to January 2026 ran to new highs.

In US dollars the flat decade was a loss. The rupee weakened from about 111 to 186 per dollar over those ten years, so a foreign investor who bought at the end of 2010 was down about 39% at the end of 2020 before dividends.

The P/E explains the flat decade

A share price is earnings times the multiple investors will pay for them. At the end of 2008, in the middle of the global crisis and before the war ended, the Sri Lankan market traded at 5.4 times earnings. Two years later it traded at 25.2 times. Almost all of the 2009 and 2010 rally was that multiple expanding: market earnings at the end of 2010 were slightly lower than at the end of 2008.

Then the multiple came back down, and it took a decade. Earnings kept growing through the 2010s, but the price had already paid for that growth in advance. By the end of 2020 market earnings were 2.3 times their 2010 level, the P/E had fallen from 25.2 to 11.2, and the index was where it started.

The same pattern, company by company

The index is an average, so it is worth checking single companies. Ceylon Tobacco shows the pattern most clearly. At the end of 2008 it traded at 4.5 times earnings. Four years later its price was 13 times what it had been, while its profit per share had roughly tripled, and the P/E had reached 19.0. Over the next eight years its earnings rose 91% and its price only 24%, bringing the P/E back to 12.3.

For a wider set, the charts and tables below start at the end of 2012, two years into the flat decade, and cover eight large companies listed throughout. Five of them followed the market's script: from the end of 2012 to the end of 2020 their share prices fell or rose modestly while profit per share grew by a third to two and a half times. Commercial Bank's price fell 18% while its earnings per share rose 49%. Since 2020, price and profit have risen roughly together at four of those five. Dialog is the exception: its price rose 256% against 53% for its earnings, and its P/E went from 8.4 to 19.5.

The other three are a reminder that the index is the better guide. John Keells and Aitken Spence, both with large hotel businesses, saw profit per share fall between 2012 and 2020. Their share prices fell further, so their P/Es came down too, but on falling profits rather than rising ones. Hayleys is the one real exception: its latest full-year profit at the end of 2020, for the year to March 2020, was 15% of its 2012 level, which makes its P/E that year meaningless. Earnings recovered the following year, and its price is 5.4 times its end-2020 level.

What a starting P/E has meant for the next five years

Take each year end since 2008, note the market P/E, and measure the ASPI's yearly return over the following five years. Every five-year stretch that ended flat started from a P/E above 15. Every start below 15 was followed by a positive five years, most of them strongly so. The one exception in the other direction is 2009: a P/E of 16.5 that still returned about 17% a year, because the rally had another year to run.

Against other markets, in dollars

For a dollar-based investor the whole period, flat decade included, still came out ahead of India and Singapore. From the end of 2007 the ASPI returned 5.3% a year in US dollars before dividends, against 2.1% for India's Nifty 50 and 3.0% for Singapore's STI, and behind the US S&P 500 (9.3%) and Japan's Nikkei (6.4%). It got there with far larger swings than any of them.

Where the market is now

The ASPI peaked at 23,992 on 28 January 2026 and was about 16% below that on 8 October. Foreign investors were net sellers through the year, and the Central Bank raised its policy rate by a full point to 8.75% in May, after an oil shock lifted fuel prices and weakened the rupee. Inflation reached 8% in August. That looks like 2011, when broker credit was restricted, foreigners sold and a run of new share issues drained cash from the market.

The difference is the price. At the end of 2010 the market traded at 25.2 times earnings. On 8 October it traded at 10.5, an earnings yield of about 9.5%, above the 8.75% policy rate. On the record above, that is not the starting point of a lost decade.

What to watch

1. Treasury bill yields and the policy rate against the market's earnings yield (100 divided by the P/E).
2. The rupee against the dollar. Every Sri Lankan bear market since 2008 came with a weaker rupee.
3. Net foreign buying and selling on the CSE.
4. Quarterly earnings. If prices rise faster than profits and the P/E heads towards 15, the cushion is gone.

The market P/E, the ASPI and each company's own valuation update daily on the Sri Lanka market page, and the ASPI's record month by month is on market seasonality.