•Analyst says it distorts market gauge
•Recommends how to achieve balance
By Peter Egwuatu
Ten companies are dominating Nigeria’s stock market, accounting for 84.4 per cent of the total market capitalisation of the equities listed on the Nigerian Exchange Limited, NGX, Year-to-Date, YtD, Vanguard investigation has shown.
The remaining 15.6 percent of the market size is shared amongst the 146 other companies in the stock market.
This indicates that any change in the share price of any of the 10 companies affects the level of the market capitalisation and direction of the stock market.
The market capitalisation of the equities refers to the value of all the 156 equities listed on the NGX which stood at N27.162 trillion as at the close of trading last Friday of the week.
However, an analysis of the market capitalisation showed that the 10 companies account for N22.925 trillion out of the total capitalisation of N27.162 trillion.
Airtel Africa Plc has the highest capitalisation of N7.161 trillion and accounted for 26.4 per cent of total market capitalisation. It was followed by Dangote Cement Plc, recording N4.517 trillion and accounting for 16.6 per cent of the total market capitalisation. MTN Nigeria Communications occupied third position recording N4.336 trillion and accounting for 16.6 per cent of total market capitalisation.
BUA Cement occupied the fourth position recording N2.347 trillion to accounts for 8.6 per cent of total market capitalisation while Nestle Foods occupied fifth position recording N1.110 trillion to accounts for 4.1 per cent of total market capitalization.
Market operators said these 10 stocks; most of the time determine the direction of the market because of their level of market capitalisation, noting that they are often referred to as bellwethers.
Investors are always attracted to the stocks because they pay dividend regularly, and all of them have already declared impressive dividends for the year ended December 31.
Airtel Africa declared $ 0.03 cents per share; MTN Nigeria N8.57 per share; Dangote Cement N20.00 per share; Nestle Nigeria N25.50 per share; BUA Cement N2.60 per share; Zenith Bank N2.80 per share; and Seplat 2.5 cents. Others are Nigerian Breweries N1.20 per share; Guaranty Trust Holding N2.70 per share and BUA Foods N3.50 per share.
Commenting on the market structure, investment analyst and Head of Research and Investment, FSL Securities Limited, Mr. Victor Chiazor, said: ”The main reason we have those companies accounting for 87.7 per cent of total market capitalisation is simply as a result of positive investor reactions towards the performance of these companies.
”The reality is that most of the other listed companies have failed to impress investors, either by way of reporting weak earnings, bad corporate governance, inconsistent dividend/bonus pay out or poor investor relation handling.”
On the implication of few companies dominating the market, he said: “The implication to the market is that this few companies will determine the direction of the market. Meaning it doesn’t matter what direction the other listed companies move, once most of the highly capitalized stocks move in one direction, the market will follow.
”For those that use the market performance to gauge the Nigerian economy, this imbalance may be misleading, especially if the person fails to understand the dynamics of the market. Hence, improving the earning performance of other listed companies is critical to increase investor sentiments towards them, while the need to find strategic ways in attracting other blue chip companies to help in increasing and balancing the number of stocks responsible for market swings.”