Investment researchers at Bancorp Securities Limited, a leading investment research and consulting firm in Nigeria, have projected that the evolving policy landscape, which is currently creating uncertainty for businesses, may dampen bullish sentiment in the stock market, with minimal impact on fixed income securities.
The experts, in the firm’s ‘Weekly Stock Recommendation for July 22 – July 26, 2024’ circulated to our correspondent, however, noted that efforts by the Federal Government to mitigate food inflation could lead to notable price movements in the stock market, potentially benefiting Consumer Goods and Insurance stocks currently trading at support levels.
According to the analysts, the government’s abrupt announcement of a windfall tax on banks, outside the 2023 fiscal year, has created uncertainty and negatively impacted the banking index, which dropped by 3.0%.
They predicted that this uncertainty may hinder the ongoing recapitalization exercise and foreign capital inflows and canvassed the need for clarity on adjustments for banks that had already paid income tax for 2023.
Noting that the fiscal measure has the potential of strengthening the government’s fiscal position and encouraging compliance with fiscal policies, the firm’s experts cautioned, however, that the measure could create uncertainty and unpredictability among investors and negatively impact on the banking index and be a potential disincentive for new capital inflow.
They advised the government on the need for clearer guidelines on tax adjustments.
On the inflation trends and outlook, the investment researchers recalled that the domestic headline inflation increased to 34.19% y/y in June 2024, driven by a 40.87% y/y rise in food prices and a 27.38% y/y increase in core inflation.
They listed the causative factors of the rising inflation as including high demand during festivities and currency depreciation, noting that the government’s 150-day tax relaxation on food imports and ongoing green harvest are expected to soften food inflation, with a forecasted headline inflation moderate inflation in July.
While predicting that tax relaxation on food imports could help lower food inflation and that ongoing green harvest in the South may support food supply, the experts maintained that high inflation rates could reduce purchasing power and pose as potential risks from fuel price hikes and flooding impacting logistics and agriculture.
