WATCH OUT FOR CHANGES IN INDICES OF NIGERIAN STOCK EXCHANGE
Are you one of those who gauge the Nigerian stock exchange through the various sectoral indices and NSE 30 index? Then watch out. From July 1, the immediate changes in them you see may not reflect just changes in market prices but also changes in the equities that make up the basket for each of the indices.
This is because from that date, the Nigerian stock exchange's first bi-annual review of the indices basket for this year will come into effect and the proposed exit and entry equities point to possible immediate distortions especially in the NSE 30.
For example, according to the exchange, the NSE 30 which is second only to the All shares index as full market indicator, may have five new entrants into the basket and the interesting thing is that four out of the five are banks. In other words, from the current 8 banking related equities amongst the NSE 30, the number is to increase to 12 from July while manufacturers will reduce by one as Cadbury Nigeria makes entry and 7Up bottling and Okomu oil exit.
Also in the basket, petroleum related companies will reduce by 1 to 5 as Con oil goes out. Conglomerates too will reduce to 1, as UACN goes out and with Julius Berger out, construction will have no representative.
In other words, expect the NSE 30 to be affected more by changes in the price of banks and manufacturers from July 1 particularly changes in the prices of the following equities with top weights currently attached to them in the index: Dangote Cement (0.17); Nigerian Breweries (0.13), GTB (0.11), Nestle (0.08) and Zenith bank (0.07).
Other indices on schedule to be reviewed are the consumer goods index; insurance index, Oil and gas index; banking index and the industrial index .For most of them, the changes may not affect end indices as the NSE 30 is likely to be affected because incoming and outgoing seem to be of about the same weight except in oil & gas index basket as heavier MRS Oil and Con Oil may give way to less weighty JaPaul Maritime & Oil and Eterna oil.
However, even in the oil and gas, the swing in the index is more likely to occur when prices of Seplat petroleum (weight: 0.40); and Total, Mobil Oil and Oando ( weight: 0.14 each) are affected.
The same with consumer goods index as Vitafoam, Honeywell Flour and Dangote Flour exit for Nigerian Enamelware, Northern Nigerian Flour mills and Union Dicon to come aboard since the dominant equities remain Nigerian Breweries (weight:0.44) and Nestle (0.26) will remain.
As for industrial index, what happens to cement manufacturers is likely to have more impact on it from July. This is because the three top weighted in the basket presently are Dangote Cement (0.47); La Farge (0.41) and Cement Company of Northern Nigeria (0.199) and none is on the way out. Going out are three paint manufacturers and in comes rather lightweight Grief Nigeria, First Aluminium and African Paints.
Sure, these attached weights may change slightly from July depending on the market capitalisation new entrants are bringing aboard and those going out are leaving with.
Nothing like luck or preferential treatment in making the different baskets, says the NSE. For the Consumer and Insurance indices, it is based on the top 15 companies in the sector in terms of capitalisation and activity in recent past just like for top 10 in banking and industrial and top 7 in oil and gas.
To be included in the NSE 30 valuation basket, adds the NSE, such a company must have traded in at least 70% of the number of days or times the market opened for trading.
All sectoral indices are reviewed with effect from January 1 and July 1 except the Lotus index which is reviewed annually and of course, the all shares index (ASI) which is reviewed only when equities are listed or de-listed because it is an all equities market affair based on capitalisation.
This is because from that date, the Nigerian stock exchange's first bi-annual review of the indices basket for this year will come into effect and the proposed exit and entry equities point to possible immediate distortions especially in the NSE 30.
For example, according to the exchange, the NSE 30 which is second only to the All shares index as full market indicator, may have five new entrants into the basket and the interesting thing is that four out of the five are banks. In other words, from the current 8 banking related equities amongst the NSE 30, the number is to increase to 12 from July while manufacturers will reduce by one as Cadbury Nigeria makes entry and 7Up bottling and Okomu oil exit.
Also in the basket, petroleum related companies will reduce by 1 to 5 as Con oil goes out. Conglomerates too will reduce to 1, as UACN goes out and with Julius Berger out, construction will have no representative.
In other words, expect the NSE 30 to be affected more by changes in the price of banks and manufacturers from July 1 particularly changes in the prices of the following equities with top weights currently attached to them in the index: Dangote Cement (0.17); Nigerian Breweries (0.13), GTB (0.11), Nestle (0.08) and Zenith bank (0.07).
Other indices on schedule to be reviewed are the consumer goods index; insurance index, Oil and gas index; banking index and the industrial index .For most of them, the changes may not affect end indices as the NSE 30 is likely to be affected because incoming and outgoing seem to be of about the same weight except in oil & gas index basket as heavier MRS Oil and Con Oil may give way to less weighty JaPaul Maritime & Oil and Eterna oil.
However, even in the oil and gas, the swing in the index is more likely to occur when prices of Seplat petroleum (weight: 0.40); and Total, Mobil Oil and Oando ( weight: 0.14 each) are affected.
The same with consumer goods index as Vitafoam, Honeywell Flour and Dangote Flour exit for Nigerian Enamelware, Northern Nigerian Flour mills and Union Dicon to come aboard since the dominant equities remain Nigerian Breweries (weight:0.44) and Nestle (0.26) will remain.
As for industrial index, what happens to cement manufacturers is likely to have more impact on it from July. This is because the three top weighted in the basket presently are Dangote Cement (0.47); La Farge (0.41) and Cement Company of Northern Nigeria (0.199) and none is on the way out. Going out are three paint manufacturers and in comes rather lightweight Grief Nigeria, First Aluminium and African Paints.
Sure, these attached weights may change slightly from July depending on the market capitalisation new entrants are bringing aboard and those going out are leaving with.
Nothing like luck or preferential treatment in making the different baskets, says the NSE. For the Consumer and Insurance indices, it is based on the top 15 companies in the sector in terms of capitalisation and activity in recent past just like for top 10 in banking and industrial and top 7 in oil and gas.
To be included in the NSE 30 valuation basket, adds the NSE, such a company must have traded in at least 70% of the number of days or times the market opened for trading.
All sectoral indices are reviewed with effect from January 1 and July 1 except the Lotus index which is reviewed annually and of course, the all shares index (ASI) which is reviewed only when equities are listed or de-listed because it is an all equities market affair based on capitalisation.
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