Equities market drops by N479bn over possible hike in MPR

Investors’ profit-taking resonated on the trading floor of the Nigerian Exchange Limited (NGX) on Monday over the possibility of the Central Bank of Nigeria (CBN) to increase its monetary policy rates.

The Monetary Policy Committee (MPC) of the CBN will meet this week to decide on various monetary and economic indicators in the face of an unabating trend in the inflation rate.

Analysts have predicted that the Committee may increase the MPR by 50basis points and retain other policy parameters.

However, at its last meeting in January, the committee raised the policy rate by +100 basis points to 17.50 per cent while keeping other parameters constant.

The committee members cited the elevated inflation rate level as the driving force.

After the moderation witnessed in December, inflationary pressures rose for two consecutive months, settling at 21.91per cent in February from 21.82 per cent reported by National Bureau of Statistics (NBS) for the month of January 2023.

This leaves economic players and investors with the guess on what tone the apex bank will conclude its next MPC meeting.

However, the market performance last week revealed that the All-Share Index (ASI) shed 1.58 per cent week on week (W-o-W) to close at 54,915.39 basis points due to profit-taking activities in some fundamental stocks.

Also, market capitalisation declined by N479 billion W-o-W to close at N29.916 trillion.

Across the sectors last week, performance was largely bearish across the indices as the NGX Banking index recorded a weekly decline of 4.6 per cent. NGX Insurance index was down by 2.4 per cent, while NGX Industrial Goods index depreciated by 0.3 per cent W-o-W. on the other side, NGX Consumer Goods index up by 1.4 per cent while NGX Oil and Gas index closed flat for the week.

According to capital market analysts, the trading activities on the stock market will be driven by the outcome of the MPC meeting this week.

Analysts said: “Last week, sell-side pressure and volatility surfaced on the local bourse, with the bears tightening their grip following the news of the contagion from the failure of some US banks.

“To this end, the market pulled back to trade below the 55,000 psychological level on sell-offs in some of the highly priced stocks and some blue-chip companies even as equity investors continued to digest the recently published inflation data ahead of the forthcoming monetary policy meeting this week.”

This week, analysts at Cowry Assets Management Limited expected to see a mixed trend of market activities as players digest recent macroeconomic data and rates from the last auction ahead of the CBN MPC meeting with more earnings scorecards in the midst of price markdowns for dividends from some companies.

“Also, it is expected that income investors will target dividend-paying and defensive stocks to defend their portfolios ahead of the governorship and state assembly elections. Meanwhile, we advise investors to trade companies with sound fundamentals and, as such, should take advantage of price corrections in line with domestic and global trends,” Cowry said.

Looking ahead, analysts at Cordros Securities Limited said: “We believe investors will focus on the outcomes of the bond auction and the MPC meeting scheduled to hold next week to gain further clarity on the movement of yields in the Fixed Income market.

“If the MPC increases the benchmark policy rate and there is a passthrough impact on yields in the FI market, there could be a realignment of investments between markets that would pressure the performance of the equities market. As a result, we expect cautious trading from domestic investors in the short term.

“Overall, we reiterate the need for positioning in only fundamentally sound stocks as the uninspiring macro story remains a significant headwind for corporate earnings.”