Tier-1 banks’ interim dividends boost domestic investors’ equities participation

A  fresh report released by the Nigerian Exchange (NGX) on domestic and foreign portfolio participation in equities trading showed that a jump in total transaction value was chiefly driven by domestic institutional investors as they moved to participate in the interim dividends declared by some companies, especially the tier-1 banks which declared half-year dividends.

Notably, domestic institutional investors’ gradual movement into the equities market to pick up the sold shares at cheaper prices was partly stimulated by the downward trend in money market rates within the just ended quarter (Q3 2021).

Stop rate for 364-day treasury-bill fell to 7.50 per cent in September from 8.20 per cent at the end of July 2021. As at the last auction on October 13, 2021, stop rate has fallen further to 7.25 per cent.

According to the report, total equities market transactions increased significantly in September 2021 compared to the volume of transactions executed in August 2021.

Also, local investors appeared to have taken positions in some fundamentally sound stocks ahead of the release of corporates’ nine months financial results – which analysts at Cowry Research felt would largely be positive.

It revealed that retail investors participation was relatively quiet compared to the level of transactions printed in August.

“We suspect that retail investors want the financial results of companies released before they take further action. However, foreign portfolio investors further moved out of the local equities market as they recorded net outflows in the month of September,” the report observed.

Speaking to the figures, domestic institutional investors recorded the highest transactions, followed by retail investors, while foreign portfolio investors’ contribution remained the least with a larger increase in outflows.

Hence, the ratio of total domestic transactions to total foreign transactions tilted lower to 79:21 in the month under review, from 72:28 in August 2021.

Total domestic transactions increased by 46.43 per cent while total foreign portfolio transactions moderated by 3.98 per cent, amid sustained sell-offs.

Specifically, total transactions on the NGX rocketed to N118.15 billion in September 2021 (from N89.42 billion printed in August 2021); of which total domestic transactions rose month-on-month (m-o-m) to N93.80 billion (from N64.06 billion).

The FPI transactions declined to N24.35 billion in September (from N25.36 billion printed in August).

A further breakdown of the FPI transactions according to the report in September 2021 showed that foreign portfolio inflows increased slightly to N11.93 billion (from

10.72 billion); also, foreign portfolio outflows mellowed to N12.42 billion in September from N14.64 billion in July.

“On the part of local investors, we saw increased stake in the equities market – their purchase transactions was N47.17 billion, higher than N46.63 billion worth of outflows. “Further breakdown showed that retail inflow transactions was N14.52 billion, lower than N17.24 billion outflows. The domestic institutional investors’ inflow transactions were N32.65 billion, higher than the N29.39 billion worth of outflows from them.”

“More so, given the inability of FPIs to repatriate their funds amid shortage of US dollar supply, we anticipate a re-entry by the FPIs into the equities market ahead of final dividend payment, pending when CBN provides dollar liquidity.

“On stock picks, we are positive with some of the tier-1 banking stocks, such as Zenith Bank and UBA as they are likely to sustain or increase their dividend payouts,” analysts at Cowry Research stated.

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