Market sentiment

Property and construction faced a mixed policy backdrop: the proposed property tax was deferred from the 2027 Budget, while TIN certification becomes mandatory from 1 November for building-plan approvals and land registration, adding a compliance step to transactions. Public construction activity progressed through the Muthurajawela fuel-terminal contract and planned hospital infrastructure projects. Construction services exports fell in August.

Consumer retail faced pressure from accelerating food, transport and housing inflation, with petrol a major contributor to the rise in national prices and purchasing power weakened by higher energy costs and tax hikes. Wholesale and retail activity nevertheless helped drive faster services-sector expansion in August. Specialist retail also consolidated as Blink International acquired Wrist Lab, combining retail, distribution and after-sales networks.

Transport and logistics drove services-export growth in August, with transport and logistics receipts up 51.41% year-on-year, while the services PMI showed faster expansion led partly by transportation. Diesel costs remain a key operating-margin risk as the government sought to hold prices steady despite higher global oil. Port and logistics upgrades and trade facilitation were discussed under the export development plan.

Manufacturing export conditions weakened in August as apparel, tea and coconut-based product shipments fell, although merchandise exports remained higher over January-August. Exporters also reported certification delays, cost pressures and cheaper imported rubber undermining local value addition. Oil-price swings added uncertainty to energy and transport inputs, while industry proposals continued to stress higher-value agrifood processing, traceability and mechanisation.

ICT/BPM services exports fell 10.49% year on year to $135.10 million in August. Public-sector technology demand was signalled by the Central Bank's invitation for enterprise data solution expressions of interest, while concerns persisted that digital ID, population-register, data-exchange, government-cloud and AI projects are advancing without adequate safeguards or consultation.

Heavy August rain and cloud cover cut High Grown tea output to a 34-year monthly low, pulling national production below a year earlier. Tea exports weakened as August merchandise tea exports fell, while eight-month shipments and US dollar earnings declined amid higher freight and insurance costs and a lower average FOB. Sector bodies also pressed for productivity, mechanisation and value addition.

Tourism remained subdued: arrivals in 1-23 September edged up 0.31% year on year, led by India, but year-to-date arrivals were 1.83% lower amid Middle East disruptions and softer global demand. August tourism earnings rose 2.1%, ending a 10-month decline, yet year-to-date revenue fell 10%. Higher energy costs and weakened purchasing power also weighed on tourism demand.

Healthcare news centred on public-sector capacity and control. The Government will take full ownership of Neville Fernando Hospital, with the Sri Lanka Air Force managing daily operations and Treasury funding salaries and operations. Cabinet approved 39 hospital infrastructure projects for the public investment programme, alongside NIC-linked e-health records, while four hospital construction projects were launched, including cardiology and emergency facilities.

Rising global oil prices prompted a Rs41 billion diesel subsidy for Oct-Dec and Rs17.2 billion in electricity-bill relief, cushioning end-user energy costs while increasing reliance on budget support rather than tariff cost recovery. New rooftop solar applicants were shifted to Net Plus, limiting grid-cost cross-subsidies by requiring users to meet their own nighttime demand. The sector also advanced a four-block Mannar Basin oil and gas licensing round.

With policy held at 8.75% amid 8.0% inflation, and Treasury and secondary bond yields rising during the window, banks face continued pressure to reprice deposits and loans while government-securities portfolios remain sensitive to yield moves. The rupee weakened and foreign investors sold rupee bonds for a second week. From 1 November, TIN verification will be required for bank accounts and credit cards, adding onboarding compliance.

The insurance sector was quiet, with no sector-specific developments in the window. Movements in government securities yields, including rising Treasury bill yields and later easing across parts of the secondary market, affect insurers through the valuation and reinvestment returns of their investment portfolios. The rupee moved from near 331.50/331.90 to around 330 per US dollar, affecting foreign-currency reinsurance and claims costs.