Increase in domestic participation supports NGX market growth in 1Q’23

The nation’s equity market in the first quarter of this year recorded positive growth, despite election uncertainties and global economic crisis. AMAKA IFEAKANDU writes on the factors that contributed to the growth of the market and other challenges experienced the period.

Election related risks

The nation’s equity market has recorded positive performance in the first quarter of this year, defying election related risks as local investors continue to dominate the market.

The market in the first three months of the year appreciated by N1.628 trillion to N29.543 trillion from N27.915 trillion it opened for the year, representing an increase of 5.83 per cent.

The NGX All Share Index also increased by 2981.28 basis points or 5.82 per cent to close at 54413.12 points from 51251.06 points it closed December 31, 2022.

An analysis of the transactions during the period showed that in January the market took positive direction, gaining N1.082 trillion, representing 3.88 per cent growth to N28.997 trillion against N27.915 trillion it closed in the previous year while the All Share index also up by 1987.61 basis points or 3.90 per cent to 53238.57 points.

The market sustained upward trend in the month of February, growing by N1.403 trillion or 4.84 per cent to N30.400 trillion from N28.977 recorded in the preceding month.

The NGX index appreciated by 2,569.59 basis points to 55806.26 points from 53238.67 traded the preceding month.

But trading activities in the month of March turned negative as the market slump by

N857 billion or 2.82 per cent to N29.543 trillion from N30.400 trillion reported in the comparative period of February while the index went down 1573.92 basis points or 2.82 per cent to 54413.12 points against 55806.26 recorded in the previous month.

Sectorial performance

The indexes performance across the sector and market were in green as NGX group index growth led the advancers after gaining 55.66 per cent, followed by Consumer goods, with 19.12 per cent, Premium board index grew by 11.97 per cent. Others index like Oil and Gas, Banking, Pension, NGX 30 , Industrial and Insurance indexes closed with 10.45 per cent, 8.50 per cent, 6.35 per cent, 4.93 per cent, 2.21 per cent and 1. 81 per cent respectively.

Best and worst performing stocks

The best performing stocks within the period under review were predominantly low, medium and high caps across the Insurance, Energy, Oil and Gas, services, Consumer Goods, Banking and industrial goods sector.

Specifically, the market was led by Tripple Gee which gained 241.77 per cent as a result of market sentiment and turn around in the company. International Energy insurance Plc followed with 158 per cent while John Holt up by 117.81 per cent, just as Geregu Power climbed by 116.78 per cent on sentiment and personality behind the company while MRS Oil Nigeria chalked up by 98.23 per cent among others.

But on the other hand, the worst performing stock was NCR which lost 41.11 per cent, amidst lack of earnings report and market forces, followed by Royal Exchange Assurance with 26.42 per cent, droping due to the unimpressive results that led to the selloffs while United Capital’s share price declined further by 20 per cent on a mixed numbers and price adjustment for dividend, Multiverse and Computer Warehouse group lost 18.59 per cent and 13.86 per cent respectively.

Operators view

Market operator said that the Nigeria’s declining economic activity especially with the introduction of new cash policy by Central Bank of Nigeria and scarcity of petroleum products affected other sector of the economy including stock market, especially in the month of March.

Operators also attributed the positive sentiment during the period to change in the holding structure of the market since foreign investors left the market on the grounds of COVID-19 and local investors dominated with increased buying interest due to the better-than-expected corporate earnings post-COVID and higher dividend payouts.”

They also believe that delisting of companies from the exchange led to massive capital flight, making it challenging for foreign investors in Nigerian stocks to withdraw their money after selling any assets.

As a consequence, market participation from abroad has drastically decreased, leaving the market for domestic investors.

Performance of the market

Commenting on the performance of the market in the first quarter of 2023, the managing director APT Securities and Funds Ltd, Malam Garba Kurfi said the nation’s capital market closed Q1 with positive returns, reporting about six per cent growth which is better than the other financial indicators ahead of MPR which gain 50 basis point to close at 18 per cent . The market Capitalisation close the quarter at N29.543 trillion .

He said the major contributors to the growth of the market within the period are Geregu Power Plc, Transnational Corporation of Nigeria (TRANSCORP) Dangote Cement, Buafoods, MTNNigeria, MRS, Conoil, Oando, among others.

He said the major challenge witnessed in the market within the period was non participation of the Foreign Investors.

He said the number of foreign investors participating in the market declined from 51 per cent to about 13 per cent due to lack of access to forex and this impacted negatively on the market liquidity.

He explained that foreign investments in equities reduced gradually in 2022, amid lingering FX liquidity constraints, and heightened global uncertainties, the improved domestic investors’ appetite for stocks triggered a high level of activities that engendered credibility and relative stability in the market.

He said most of the foreign investors that exited the market since Covid 19 are yet to return back to the market.

He stated that majority of them would only come back when CBN policy become more friendly.

For the market to sustain growth, Kurfi said

the reviewed Investment Act 2007 by NASS should be sign by the President to accelerate growth of the Capital Market.

A financial analyst, Mr Iheanyi Onyia said that the positive performance was because investors are in the earning season, adding that what they will get from dividend is one of the factors that is driving the demand of shares in the market.

He noted that the equities market is defying current political uncertainties because investors are futuristic that the prospect for yield environment is bright.

According to him “we are in the earning season, when the market normally sustains positive sentiment, but this season is within the period of an election. I think the crave for dividend is overshadowing what would have been the impact of the elections”

Also speaking, the chief operating officer of InvestData Consulting Limited, Mr Ambrose Omordion said the market defies the impact of rate hike in the first two of the Central Bank of Nigeria Monetary Policy meeting in 2023, election uncertainty, Global fear of recession and geopolitical tension to close at higher on the strength of increasing local investors participation since foreign investors left the market in 2020 and stronger corporate earnings in the face of mixed dividend payout and higher volatility for the period.

He said the rally during the period was also supported by the price of appreciation by high cap stocks like Geregu power and others.

He said in February alone which is election month, the index recorded a robust growth which was sustained into early March before reversing on selloffs, profit taking and panic trading as a result of global banking crisis that triggered fear of recession on concerns for the on going central banks of the world rate hikes in the name of checkmating inflation at the detriment of the economic activities.

This according to him resulted on the benchmark index lost of 2.82 per cent during the month, slowing down the quarter and year till date gain to 5.82 per cent while ushering in the second quarter session with mixed outlook on the quarter as 2023 first quarter earnings reports are expected to be mix in this new month.

Market outlook

On the market outlook, Omordion said “we expect improved sentiments and mixed trend as players analyze recent earnings that hit market, ahead of more earnings reports in the midst of expected quarter end window dressing and price adjustment for dividend.

“We note that income investors continue to target dividend paying and defensive stocks to protect their portfolios post-dividend adjustments. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price correction.”

Also, a report from Cordros Securities Limited said it expect investors positioning for 2022 full year results ahead of upbeat corporate earnings and re-investment of dividends to drive bullish sentiments in Q1, 2023.

“Nevertheless, in the latter part of the year, we believe that market sentiments will be shaped by a combination of the outcome of the 2023 elections; market-friendly policy or reforms; the direction of monetary policy and impact on fixed income yields; sector-specific events; and the weak macroeconomic environment.”