Nigerian Exchange Limited ASI Falls by 1.90% in March amid Retail Investors’ Sell-off

Naira Weakens against the USD at the Bureau De Change & Black Markets
Afolabi Sotunde Illustration Naira

Freshly released report by the Nigerian Stock Exchange (NSE) on domestic and foreign portfolio participation in equities trading showed that total equities market transactions increased in March 2021 compared to the volume of transactions done in February 2021 amid increased participation by retail investors.

It appears the huge transaction volume done by retail investors were more of sell-offs as depicted by the negative performance of the benchmark index in the month under review.

Also, the decline in transaction volume by the domestic institutional investors and the slower inflows from the foreign portfolio investors contributed to the southward movement of the local bourse index in March.

Given the increased involvement of the domestic players on the Nigerian Exchange Limited, especially the retail investors, the ratio of total domestic transactions to total foreign transactions tilted to 82:18 in the month under review, from 71:29 in February 2021 as total domestic transactions increased by 22.37% while total foreign portfolio transactions contracted by 34.53%.

Specifically, total transactions on the Lagos bourse increased to N228.49 billion in March 2021 (from N215.58 billion printed in February 2020); of which total domestic transactions increased to N187.85 billion (from N153.51 billion).

On the flip side, FPI transactions decreased to N40.64 billion (from N62.07 billion). A breakdown of the FPI transactions in March 2021 showed that foreign portflio inflows contracted by 11.56% to N20.36 billion; also, foreign portfolio outflows fell by 48.07% to N20.28 billion.

Retail investors increased their stake in the equities market, albeit at lower prices (transactions from this group rose to N108.55 billion in the month under review from N53.80 billion in February 2021).

However, domestic institutional transactions dropped year on year by 20.47% to N79.30 billion in March 2021. Amid profit-taking activities, chiefly by the retail investors, as well as the lukewarm approach of the domestic institutional investors, the NSE All-Share Index (ASI) contracted by 1.90% to 42,412.66 index points to close for the month of March 2021.

In another development, the total revenue generated by Federal Government from Value Added Tax (VAT) increased y-o-y by 52.93% (also rose q-o-q by 9.20%) to N496.39 billion in Q1 2021, from N324.58 billion printed in Q1 2020.

The income from the consumption tax placed on the price of value-added products surged amid the Federal Government decision in 2020 to raise the rate to 7.5% from 5.0% – the new rate took effect on February 1, 2020.

According to the data released by the National Bureau of Statistics (NBS), out of the total amount generated, N224.85 billion was from NonImport VAT (Local); N171.66 billion came from non-import VAT (foreign); and the balance of N99.88 billion was from Nigeria Customs Service (NCS) – Import VAT. Income from the three streams rose y-o-y by 30.22%, 116.42% and 37.60% respectively in March 2021.

Sectoral analysis of the VAT income revealed that out of the 28 sectors monitored, income from 19 sectors grew; especially those of Offshore Operations, State Ministries & Parastatals, Transport & Haulage Services, and Chemicals, Paints & Allied Industries which rose by 167.91% (N1.56 billion), 152.79% (N26.96 billion), 94.77% (N14.93 billion) and 72.40% (N0.98 billion) respectively.

In line with our expectations, the local bourse witnessed another marginal decline in March given the shift by investors to the fixed income space amid a rising yield environment which appears not to have reached a resistance level.

Despite the shift to fixed income securities, we still expect more strategic positioning in stocks with high dividend yields. Meanwhile, with the growth in VAT reflecting the positive impact of the partial economic recovery, we note that the option by the FG to implement phase four of the lockdown could limit gains.