Implication of GDP Growth on the Nigerian Capital Market

  • Stocks to Watch

Recent report published by the National Bureau of Statistics (NBS) revealed that Nigeria’s Gross Domestic Product (GDP) grew by 5.01% in the Second Quarter of 2021. This is a massive jump from the GDP growth of 0.51% reported in the First Quarter of 2021.

By all standard, this is a sure indication that economic activities has returned after the lockdown, occasioned by COVID 19 pandemic. The gradual return of commercial activity as well as local and international travel, accounted for the significant increase in growth performance relative to the second quarter of 2020 when nationwide restrictions took effect.

Commenting on the impact the GDP growth would have on the capital market, the MD/CEO of Global View Capital Limited, Aruna Kebira stated thus:

“Figures don’t have emotion. The Q1 2021 figure for GDP growth was 0.51. Q2 growth is now 5.01%. This is a very big leap. Whatever contributed to the growth is pointing to a good direction for the economy and for the market. It is a confidence booster. It means that going forward, we have hope as far as the country is concerned. Irrespective of the insurgence, banditry and other obvious challenges in the country if GDP can grow to that level, then there’s hope”.

“In the money market, the 364 days treasury bills has continued to come down. From 7%, it’s now about 6%. It means that the rates are coming down. Even in the bond market, it’s like the Government is conscious of reducing their cost of funds. What that simply means is reducing interest rates. By the time there is reduction the interest rate in the bond market and money market, there will be circular flow of income, such that the next destination is the equity market”.

“Last week, there was OMO settlement. Even though there was Treasury bill auction, it was far lower than money that came into the system, which means that the system is very liquid”.

“With the information of the growth in GDP and reduction in inflation suggests that all things is working together for the market. When you put all these together, there is no way the market is not going to be affected positively”.

“If you now say that will prices come down? The real question to ask is that are these stocks trading at their fair value? Most of these stocks are trading below their intrinsic value. So how should we be expecting prices to go lower than what we have seen? But with these good results in the air at the market place, I think the only thing the market needs to do is to go up”.

“Yes we are waiting for about 4 or 5 banks that normally release their results at this time to pay interim dividend. Why the results will not actually impact those prices the way we feel is because this thing is given. We know Zenith will pay 5 kobo; we know GTCO will pay 30 kobo. We know Access Bank will not be more than 25 kobo. We know that UBA will not be more than 20 kobo. The only thing that will bring shock to the market is if there is a drop in dividend pay-out. We have seen that of Zenith Bank, they paid 30 kobo. The market will only get a shock when GTCO now say they are paying 25 kobo. If Guaranty is paying 30 kobo, it’s a known price; it is given.  That has already been factored into the price that Guaranty is trading now”.

“I believe that by and large, the market is billed to perform better with all these information at the market place. We expect that the next inflation will be lower than the previous one and we are also expecting that the GDP will grow higher than what we saw”.

Stocks to Watch

  • Okomu: The Company released a fantastic in Q2 2021 and it has good dividend pay-out history
  • Presco: Presco is in the same industry with Okomu.  Growth in the company’s figures for Q2 2021 was impressive.
  • Courtville: Performance of Courtville for 2021 is Sterling. They are in AUTOREG business. Autoreg is not in all the 36 states, which means they are penetrating into other states. As they penetrate to other states to handle the registration of their licences, they will do better.
  • BOC Gases: The acquisition of BOC Gases by TY Danjuma is going to have a very good impact on that stock going forward.
  • Oando: This is based on the fact that their scheduled AGM may give birth to the release of the 2019 and 2020 results which is believed that will be better.

Leave a Reply

Your email address will not be published. Required fields are marked *