Capital Markets

Blue chip stocks lift NSE Share Index above 3,000 points


Brokers at the NSE. FILE PHOTO | NMG

Blue chip stocks have recorded sharp share price gains at the Nairobi Securities Exchange (NSE), #ticker:NSE lifting the bourse past the psychological 3,000 points mark for the first time in five months.

The benchmark NSE 20-Share Index stood at 3,041.2 points at close of trading Wednesday, having gained 36 points on the day and 207.4 points since the beginning of the year.

The surge in share prices, which is mainly driven by demand from local investors, has seen the index record a year-to-date gain of 7.4 percent.

Investor wealth, as measured by market capitalisation, has risen by Sh298 billion since the beginning of the year, clawing back more than half of the Sh419 billion in loss that was eroded from the market last year in just over one month.

The rally is fuelled majorly by blue chip stocks, which are attracting investors focused on good dividends betting on the projection that the companies’ full-year profits will go up.

“The market is being driven by blue chip stocks. Supply has reduced on the Safaricom counter amid higher demand, hence the price appreciation on the stock, while EABL has rallied since it announced its half-year results last month,” said Genghis Capital analyst Grace Wangeci.

Investor sentiment

“Investor sentiment is also changing, with local institutional and retail investors increasingly active after largely sitting out last year. Their support has been key, given that foreigners are still selling, even though on a reduced scale compared to previous months.”

EABL has gained 21.5 percent since January 24, when the brewer announced a 33 percent growth in half-year to December 2018 net profit to Sh6.6 billion and announced an interim dividend of Sh2.50 per share.

Banks are due to release their full-year 2018 results, with the expectation that they too will report higher earnings.

The lenders reported a 13.2 percent rise in their cumulative net earnings for the nine months to September 2018 to Sh73.8 billion, indicating that full year earnings are likely to top those of 2017, barring an unexpected and significant downward shift in performance in quarter four.

Fuel demand

This has helped fuel demand for bank stocks with an eye on dividend growth. Equity Bank and KCB are trading at five-month highs, having gained 23.5 and 17.4 percent respectively this year.

“With the reporting season coming up, it could also be an indication that investors may be looking to lock in lower prices ahead of the dividends announcement, as this translates to a higher dividend yield,” said Kingdom Securities senior research analyst Mercyline Kyalo.

NIC Bank, which is in the process of a merger with top tier lender Commercial Bank of Africa (CBA), is the leading gainer in the banking segment this year at 38.5 percent (closing yesterday at Sh38.50).