In the just concluded week, the newly released report by the Nigerian Exchange (NGX) on domestic and foreign portfolio participation in equities trading showed that total equities market transactions rose sharply in October 2021 compared to the value of transactions
executed in September 2021.
The significant increase in total transaction continued to be driven by domestic institutional investors as
they accumulated more shares to take position in some fundamentally sound stocks given the release of corporates’ 9 months financial results which were largely positive.
We saw increased participation on the side of the retail investors too, but it was more of sell-offs than bargain hunting activity – we suspect that some retail investors decided to take short term profit as share prices appreciated in response to the positive financial results of companies released in the month of October.
On the part of foreign portfolio investors, it was a mixed bag situation as the difference between their outflows and inflows were marginal amid higher transactions recorded in the month of October.
Specifically, domestic institutional investors generated the highest transaction value, followed by retail investors as they largely sold off than they bought; while foreign portfolio investors’ contribution remained the least with a marginal net increase in outflows.
Hence, the ratio of total domestic transactions to total foreign transactions further tilted lower to 80:20 in the month under review, from 79:21 in September 2021 – total domestic transactions increased by 81.93% while total foreign portfolio transactions rose by 74.21% – as foreign investors inflows improved.
Directly speaking to the numbers, total transactions on the NGX ballooned to N213.07 billion in October 2021 (from N118.15 billion in September 2021); of which total domestic transactions rose month-on-month (m-o-m) to N170.65 billion (from N93.80 billion).
Also, the FPI transactions grew to N42.42 billion in October (from N24.35 billion in September).
A further breakdown of the FPI transactions in October 2021 showed that foreign portfolio inflows increased significantly to N20.91 billion (from 11.93 billion); also, foreign portfolio outflows increased to N21.51 billion in October from N12.42 billion in September.
On the part of local investors, we saw increased stake in the equities market – their purchase transactions were N85.97 billion, higher than N84.68 billion worth of outflows.
Further breakdown showed that retail inflow transactions was N23.66 billion, lower than N34.68 billion outflows. The domestic institutional investors’ inflow transactions were N62.31 billion, higher than the N50.00 billion worth of outflows from them.
Hence, as the local institutional investors threw their weight behind equities market (given the sharp decline in stop rate for 364-day T-bill to 6.99% in October from 7.50% in September 2021), coupled with the encouraging inflows from the foreign investors, the NSE All Share Index (ASI) rocketed by 4.52% to 42,038.60 index points for the month of October 2021.
Cowry Research expects the local equities market index to trade marginally northwards on the back of declining inflation rate and relatively high GDP growth rate.
Also, investors who target appreciative dividend yield would begin to position in the stock market, especially in the banking sector which has recently suffered a pull back in
Meanwhile, the significant increase in FPI inflows in the month of October was in line with our expectations in our weekly report dated Friday, October 22, 2021 that the inability of FPIs to repatriate their funds amid shortage of US dollar supply, would re-activate their gradual re-entry into the equities market ahead of final dividend payment, pending when CBN provides dollar liquidity .