FINANCIAL CHRONICLE – Soon after the United States and Israel began bombing Iran on February 28, Sri Lanka’s stock market experienced its first casualty. The bourse has plunged 12.7 percent through March 20, erasing 1.07 trillion rupees in capital within just 14 days.

Upon reopening for trading on March 3 after the attack, the market fell more than 5 percent, necessitating a temporary trading halt. Investors are eagerly awaiting positive news from both local and international fronts.

Locally, the resurgence of fuel queues and the potential for a power crisis are undermining investor sentiment. Concurrently, uncertainty surrounding the cessation of conflict weighs heavily from external factors, analysts note.

“Interestingly, compared to other markets like India and Europe, Sri Lanka’s market has reacted the most,” said Raynal Wickremeratne, Head of Strategy at Softlogic Stockbrokers. “Most countries experienced a 4-7 percent drop, while we are down almost 14 percent. This could be attributed to investors witnessing fuel queues as soon as they leave their offices.”

Following the attack, long queues for fuel emerged throughout Sri Lanka, with many fearing a shortage even before Iran closed the Strait of Hormuz. Memories of a three-decade conflict and the 2022 economic crisis prompted some motorists to queue not just to refuel, but to store extra fuel.

Analysts express concern that memories of the power cuts, gas shortages, and closure of public institutions experienced in 2022 are causing investor anxiety, which could lead to an economic slowdown. Additionally, with the closure of transit hubs like Dubai and Doha, Sri Lanka’s thriving tourism industry may face a decline in visitor numbers.

Currently in its peak tourism season, Sri Lanka had aimed to attract 3 million tourists throughout the year. However, official data indicates a 19.4 percent drop in arrivals in the first 18 days of March. The daily average of tourist arrivals has decreased by 39 percent in March, falling to 6,000 from approximately 10,000 in February 2026.

This downturn is reflected in the performance of listed tourism shares; from February 27 to March 17, Ceylon Hotels Corporation saw a 29.7 percent decline, Palm Garden Hotel dropped 24.7 percent, and Aitken Spence Hotel Holdings fell by 23.8 percent, according to Softlogic Stockbrokers.

Market heavyweight John Keells Holdings experienced a 3.74 percent drop by March 17, attributed to its tourism sector. Softlogic Stockbrokers noted that Jetwing Resorts reported a 5-10 percent decline in occupancy, while Heritance Ahungalla faced significant cancellations in long-stay European bookings.

“To meet the target of 3 million arrivals, the industry must pivot toward direct connectivity with Asian markets, moving away from its traditional reliance on the Middle East,” stated Navin Ratnayake, Head of Research at John Keells Stockbrokers. “Sri Lanka finds itself positioned between budget destinations like Vietnam and Thailand and luxury destinations like the Maldives, making it strategically vulnerable.”

Additionally, Sri Lanka’s exports, particularly tea, have been significantly affected by the ongoing Gulf conflict. Gulf countries are the primary buyers of Sri Lanka’s branded ‘Ceylon Tea,’ with Iraq accounting for 23.3 percent, according to 2025 data.

In the first week following the attack, tea prices fell by 4.3 percent, and the volume of tea sold declined by 13.2 percent at Sri Lanka’s weekly tea auction. This has resulted in some tea stocks plummeting by as much as 30 percent due to rising shipping costs, leading many exporters to face delays in fulfilling orders.

The Tea Exporters Association (TEA) estimates a weekly revenue loss of US$10-15 million, further impacting listed tea firms. Namunukula Plantations saw a 30.6 percent drop, while Agalawatte Plantations fell by 22 percent. Industry leaders like Akbar Brothers noted that although they can still buy and process tea, shipping issues have left warehouses filled with packed cargo.

“Certain ships are unable to berth here… there’s a total blockage,” an official from Akbar Brothers remarked, pointing out that freight charges have surged dramatically. This situation particularly affects the high-value low-grown tea favored by Middle Eastern and Russian markets.

As exporters become less active at auctions due to shipment delays, concerns are mounting regarding the sustainability of premium tea prices.

In the apparel sector, listed firms such as TJL are rerouting shipments to Europe and the U.S. via the Cape of Good Hope to avoid the Red Sea, according to Softlogic Stockbrokers. TJL’s shares plummeted 20.6 percent on the first trading day following the Iran bombing.

While buyers currently absorb the additional freight costs, companies are also facing rising raw material costs for yarn and fabric imported from China and India. Hayleys PLC, which has significant logistics and export interests, experienced a 6.4 percent decrease in share price on the first trading day after the conflict escalated in the Middle East. Hayleys Fabrics shares, a garment exporter and subsidiary of Hayleys PLC, have declined by 17.2 percent since the outbreak of the conflict.

On the other hand, analysts suggest that South Asia Gateway Terminals (SAGT) and West Container Terminal (WCT) in Colombo Port may benefit from increased throughput as cargo initially destined for the Middle East is rerouted or offloaded in Colombo. John Keells Holdings, a leading conglomerate with stakes in both terminals, has seen its shares remain resilient due to expectations of improved performance in its terminal and bunkering operations.

Bunkering operations are also experiencing short-term gains. As Brent crude prices rose to $109.2 per barrel by March 20, a 49.62 percent increase since the onset of conflict, operators can sell their existing inventory at better margins. Experts indicate that JKH’s bunkering business, which operates on a cost-plus basis, is well-insulated from the losses incurred in the tourism sector.

Additionally, in the agribusiness sector, Sunshine Holdings PLC is benefiting from rising global palm oil prices, which have increased by 12 percent since the start of the conflict, partially offsetting losses in their tea trade through Watawala Tea and Zesta, as noted in Softlogic Stockbrokers’ report. Similarly, the renewable energy sector is becoming increasingly attractive as the cost of thermal electricity generation rises alongside global oil prices.

(Colombo/March 20/2026)