Analysts at Bancorp Securities Limited, a leading investment research and consulting services provider in Nigeria, have predicted that the Nigerian equities market may experience moderate volatility this week as investors continue to respond to the recent naira depreciation and currency market dynamics, with particular attention to sectors less affected by FX exposure.
The experts, in the firm’s ‘Weekly Stock Recommendation for Nov 11 to Nov 15, 2024’ circulated to our correspondent on Monday, recalled that given the robust YTD gains and strong liquidity observed in prior weeks, they “expected selective profit-taking in high-performing sectors like Oil & Gas and Banking, while stable demand may continue to support Consumer Goods and Industrial sectors.”
On the lingering face-off between Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), and Dangote refinery’s management regarding petrol prices, the analysts pointed out that the association’s claim to offer lower petrol prices than Dangote refinery could ease inflationary pressures, particularly in transport and commodity costs, thereby improving household purchasing power.
In addition, they argued that this could lead to increased disposable income for lower-income families, support domestic consumption, and contribute to economic growth in Nigeria.
Reflecting on the downstream oil market’s pricing and sectoral and structural implications, the Bancorp Securities’ experts noted that PETROAN’s stance supported President Tinubu’s goal to liberalize the downstream sector, promoting competition that could lower prices, increase market efficiency, and attract investments in refining.
This is even as they added that this diversification would reduce Nigeria’s reliance on fuel imports, strengthen the naira, support economic diversification, and create jobs, benefiting both the forex market and domestic industries.
In addition, the analysts maintained on the issues of Quality Assurance and Health/Safety Risks & Regulatory Framework and Market Standards that Dangote’s concerns highlighted the need for strict quality control in a liberalized market to prevent safety and health risks from substandard petroleum imports. For competition to be effective, regulatory bodies like the DPR must enforce consistent quality standards across all suppliers to maintain consumer confidence and market stability.
They also believed that PETROAN’s entry into the import market could temporarily increase foreign exchange (FX) demand, and that the long-term benefits may include reduced reliance on expensive imports and lower pressure on the official FX market.
The analysts further clarified: “A liberalized downstream sector may reduce profit margins for large players but could stimulate fuel consumption, boosting VAT and tax revenues, while also reducing subsidy reliance to free up funds for infrastructure and social programs.”
