First Capital Holdings PLC’s Chief Research and Strategy Officer Dimantha Mathew shares insights into investing in 2025 and how the firm is poised to unlock growth opportunities for itself and its clients.
The 2025 investment outlook shows gradual stabilization and recovery in Sri Lanka’s economy, supported by consistent fiscal and monetary policies. In an interview with Echelon, Mathew explained that completing external debt restructuring and improving credit ratings have reduced uncertainties, paving the way for renewed foreign interest in fixed-income and equity markets.
Interest rates will likely remain low in the early part of the year, with government securities yields declining slightly due to this increased investor interest. However, as the year progresses and external debt repayments begin, interest rates are expected to rise modestly by around 100 to 150 basis points, signalling a normalization in the broader economic environment.
First Capital projects economic growth to stabilize at a range of 3-4% in 2025, slightly lower than the robust performance in 2024, fueled by recovery from a low base. The first quarter of 2025 will benefit from improved disposable income from tax cuts, the relaxation of vehicle import restrictions, and extended support for SMEs and MSMEs. These measures are likely to drive domestic demand and bolster business activity. “Despite the additional pressure from debt repayments starting early in the year, the overall economic recovery will remain on track, albeit at a more moderate pace than the previous year,” Mathew said.
He expects the Sri Lankan rupee to depreciate by approximately 5% in 2025, which aligns with historical trends. The exchange rate will stabilize within Rs305/$ to Rs315/$ by year-end, reflecting the effects of debt repayments, import activity, and ongoing currency adjustments. Inflation, which recorded deflationary trends in late 2024, will likely stay below the Central Bank 4-6% target range until the latter part of 2025. A temporary increase above this range is possible in the fourth quarter due to base effects from the previous year’s deflation. However, inflation could normalize thereafter as the economy absorbs moderate price increases and currency depreciation.
Mathew projects private sector credit growth to rise to 11-12% in 2025, surpassing the previous year’s levels as demand for credit strengthens, particularly from small and medium enterprises. State credit contraction would persist, keeping overall credit expansion within sustainable levels. The equity market would continue its bullish trend, supported by improved corporate earnings growth forecast to reach 22% in 2025, alongside renewed foreign investor interest and limited alternative investment opportunities. “We expect the ASPI would reach 16,500 to 17,500 points, with investor sentiment remaining strong, particularly during the first quarter,” Mathew asserts.
While the outlook is broadly positive, he pointed out potential challenges remain. Delays in implementing structural reforms under the IMF programme, including privatization initiatives, could limit progress. Sri Lanka faces intense competition for foreign direct investment from regional markets with more attractive labour and production factors. “Additionally, currency and interest rate volatility tied to external debt repayments may present further risks,” Dimantha said, adding, “Nonetheless, 2025 would offer moderate investment opportunities, with a stable macroeconomic backdrop supporting continued recovery and growth across key sectors”.
Consistent Success
First Capital is one of the largest investment houses in Sri Lanka. It has adopted a strategy focused on research and client education, which has helped it build trust and achieve recognition in the industry. The company’s success stems from leveraging internal and external research when making investment decisions. “Our commitment to research extends to how we advise clients, ensuring that the recommendations align with our investments. By investing where we encourage our clients to invest, we have successfully built credibility and fostered a growing trust with clients,” Mathew explained.
Over the years, First Capital has transitioned from a B2B strategy to a more consumer-focused B2C model, aiming to educate retail investors and increase accessibility to its services through increased brand awareness and various educational efforts, such as webinars, investment guides, and online resources. One such initiative is the Stock Talk webinar, where retail investors can ask questions and receive investment guidance. Furthermore, First Capital has made it easier for investors to open accounts and access services, improving onboarding processes significantly. As a result, First Capital has supported the growth of its clients while expanding its reach in the retail market.
The firm’s use of technology is another key aspect that sets it apart in the financial services sector. It has pioneered in Sri Lanka, introducing investment and withdrawal options through WhatsApp—an innovation not yet offered by many banks. This level of accessibility allows clients to manage their investments with ease, demonstrating First Capital’s commitment to leveraging technology for enhanced convenience. Additionally, the firm has been a leader in offering a variety of communication tools, including short and long videos, to reach a broader audience and facilitate investor education.
Winning Strategy
First Capital’s commitment to growth mirrors its retail strategy and overall business expansion. From 2019-2020, the company’s assets under management (AUM) in its unit trust products grew from Rs9 billion to Rs55 billion. As of October 2024, AUMs have exceeded Rs58 billion, with the combined wealth management portfolios pushing the total beyond Rs100 billion. These numbers reflect the firm’s ability to consistently attract new investors while maintaining strong returns, driven by sound research and effective communication.
The firm’s focus on innovation, research, and technology has earned it significant recognition in the industry. Notably, First Capital won the ‘Brand of the Year’ award at the SLIM Brand Excellence Awards 2024, marking the first time a capital markets firm has received such an honour. This recognition is especially significant because it highlights the importance of capital markets and investment banking in Sri Lanka’s financial ecosystem. In the view of many, First Capital’s ability to provide guidance and instil confidence in investors during a crisis distinguished the firm. By leveraging its research capabilities, the company played a critical role in assisting investors to navigate periods of uncertainty and make informed decisions.
Looking ahead to 2025, Mathew said First Capital plans to continue its momentum by further strengthening its core business areas. The company intends to enhance its operational capabilities, ensuring it can manage larger volumes and more transactions as retail penetration increases. There is also a clear focus on people development, with the company investing in attracting younger talent and offering management training programmes to ensure leadership continuity. In addition, the company will continue its push for financial literacy, providing both seasoned investors and retail clients with the tools they need to make better-informed investment decisions. Through these initiatives, First Capital is solidifying its position as a leader in the financial services sector while maintaining the trust and confidence of its growing base of investors.