NSE caught in crossfire of telecoms price wars

Market capitalisation of the Nairobi Stock Exchange dipped last week on account of a decline in the Safaricom share price occasioned by the stiff competition in the telecoms sector.

The bourse shed Sh30.7 billion even as the Safaricom share price declined from Sh5.7 to trade at Sh4.70 on Thursday.

“The decline in the equity market capitalisation can be attributed to competition in the mobile telephone industry that has triggered a decline in Safaricom share prices,” reported the Central Bank of Kenya (CBK) in a statement.

The NSE 20 share index declined by 61.56 points to settle at 4,542 points in August 26 from 4,603.5 points on August 19th 2010.

The NSE all share index lost by 2.69 points to settle 97.8 on Thursday from 100.49 the previous week.

Last week witnessed the most fierce price wars in the country, ignited by a move by Zain Kenya that reduced the calling tariff by 50 per cent.

The decision saw Safaricom, which commands over 80 per cent of the market share, witness a loss of subscribers to Zain.

Temporary price cut

Safaricom responded with a temporary price cut to stem the mass migration as it contemplated the next strategy.

It is, however, the sustainability of Safaricom’s huge profits in the wake of lower calling tariffs that has elicited a decline in the firm’s share price.

“The reduction in the share price has profound significance on the equity market, hence this is painting subdued performance on the bourse,” said Johnson Nderi of Suntra Investment Bank.

The 20 per cent dip in the Safaricom share price saw increased share holder flight which buoyed the fixed income securities market.

This saw the bond market that had registered Sh32.3 billion in trade in the week before rise to Sh52.2 billion last week.

“The increase in bond turnover may be attributed to possible investor portfolio reallocation from the equity market,” read the CBK weekly bulletin.

Massive activities