Profit-taking, portfolio adjustments weather Gulf geopolitics
While panic retail selling is often blamed for immediate volatility in the Colombo Stock Exchange (CSE), institutional selling, especially by Foreign Institutional Investors (FIIs), is often the primary driver of major declines in highly capitalised stocks.
Foreigners have steadily been net sellers on the CSE, with net foreign selling exceeding Rs. 51 billion in 2020 and continuing into 2024 and 2025. The CSE experienced a significant decline, driven by several factors including Trump tariffs, ongoing conflicts in West Asia, and concerns related to the adverse effects of high crude oil prices on Sri Lanka’s economic growth and corporate profitability. The rising global volatility has posed significant challenges for the garments and tea exports, with the tourism sector also getting some hits.
According to analysts, FIIs are expected to sell down more in the near term, and this trend is likely to exacerbate the existing market weakness, affecting even those sectors and stocks that are fundamentally strong.
Vice President –Softlogic Stockbrokers Pvt Ltd, Eardley Kern noted that short-term volatility often triggers emotional reactions among certain segments of investors, and that the decline in the stock market was investors taking calculated risks.
“Amid increased geopolitical tensions in the Gulf region and growing uncertainty around global energy flows, experienced investors had already begun pricing in potential downside risks,” he said, noting that these investors anticipated a market correction in the range of around 10 per cent, based on evolving macroeconomic indicators, regional instability, and historical patterns of market behaviour under similar conditions.
Noting that these market participants had a calculated approach, he said they strategically adjusted their portfolios—either by taking profits to high levels or by selectively reducing exposure in overvalued counters. “Many of these same investors have stayed active during the dip, re-entering positions at more attractive valuations and seizing on the dips in prices, showing a disciplined investment philosophy: identifying that volatility is not merely a risk, but also an opportunity.”
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