Dada: Macro-economic Stability, Corporate Performance, Investor Confidence Fuelling Stock Market Rally

In this Interview, the 13th President and Chairman of Council of the Chartered Institute of Stockbrokers,Oluropo Dada posits that stable macro-economy driven by federal government’s policies, improved corporate performance are responsible for the massive rally at the stock market

What is driving the ongoing upswing on the Nigerian Exchange (NGX)?

A confluence of macroeconomic stability, improved corporate performance, and renewed investor confidence is fuelling the current rally on the Nigerian Exchange (NGX). Some of the Key drivers include: Efforts of the Central Bank of Nigeria(CBN) in managing forex. The CBN has made significant progress in clearing forward backlogs and has adopted tighter monetary policies to stabilise the Naira. 

Does the rally also have to do with the activities of foreign portfolio investors?

Relative stability in the economy and the fact that shares of many of quoted companies are undervalued relative to their intrinsic values have boosted confidence of Foreign Portfolio Investors (FPIs). There is improved liquidity in the forex market and the Naira is relatively stable. Many blue-chip firms—particularly in the banking, telecoms, and consumer goods sectors have posted robust Q1 2025 earnings with improved margins. This is on the back of forex gains and cost optimisation.  The outstanding performance has strengthened investor appetite for the companies’ stocks. The market has recorded moderate foreign portfolio inflows, which indicates optimism in our market. 

What about the local institutional participation?

We have seen renewed patronage from domestic institutional investors, especially Pension Fund Administrators (PFAs). They are reallocating capital into equities to capture long-term value opportunities. The momentum is spurred by improved economic indicators and less forex related uncertainty. We cannot also rule out technical momentum sentiment. The NGX All-Share Index has breached several resistance levels since late 2023, drawing in speculative investors and retail investors. Increased trading volumes, new listings, particularly in fintech and upstream oil and gas also enhance market depth. The NGX rally is underpinned by structural reforms, stronger earnings, forex market improvements, and strategic asset reallocation. Barring external shocks, the momentum is likely to persist. However, we cannot rule out short-term corrections from profit-taking or policy risks as the market has self-correction mechanism.

Is the current upswing on the Nigerian equities market sustainable?

Yes, the rally is potentially sustainable in the medium term, provided that macroeconomic reforms are followed through, forex stability is maintained, and earnings momentum continues. However, Nigeria remains a high-beta market. Investors should stay grounded in fundamentals, adopt a disciplined accumulation strategy, and monitor policy direction closely. Sustainability of the ongoing upswing on the NGX depends on the alignment of several supportive macroeconomic, corporate, and policy factors, balanced against notable risks. While the outlook is cautiously optimistic in the medium term, it remains highly sensitive to execution and external shocks. 

What factors can enhance sustainability?

Macroeconomic Reforms with Consistent Execution is one of the key factors. Continued implementation of credible reforms such as fiscal discipline, forex market liberalisation, subsidy rationalisation, and tax reforms amongst others will deepen investor confidence and attract sustained capital inflows. Strong and Broad-Based Earnings Momentum, especially in banking, telecoms, and consumer goods will strengthen sustainability. These sectors are benefiting from gains, inflation-linked pricing, and higher interest margins. If Q2 and Q3 earnings maintain this trajectory, it will support more rally. Pension Funds, insurance firms, and fund managers are allocating more to equities to hedge inflation and preserve value amid limited fixed-income upside. Their long-term capital adds depth and reduces speculative volatility.

The CBN’s ongoing efforts to clear forex backlogs and attract diaspora remittances and Foreign Portfolio In Investment (FPI) inflows are making the forex market more predictable by boosting investor confidence and improving corporate planning. If we consider the metrics like Price-to-Earnings (P/E) and Price-to-Book (P/B), Nigerian equities, particularly financials, remain undervalued relative to their frontier and emerging market peers. These present buy signals. Increased access to digital trading platforms and growing financial literacy are also fuelling a new wave of retail investors. This bottom-up demand is complementing institutional flows and broadening market participation.

Can you comment on risks that can undermine rally?

Policy Inconsistency or Reversals remains an elephant in the room. Any rollback of reforms such as reintroducing fuel subsidies, renewed forex controls, or unclear fiscal policies could erode confidence and trigger capital flight if not properly implemented. I must equally state that high inflation, if not accompanied by productivity gains or real wage growth, could erode purchasing power, reduce corporate margins, and affect consumer-oriented stocks. A sharp depreciation of the Naira, especially in the parallel market, could reignite forex losses for corporates and deter foreign investors.

Insecurity, labor strikes, or political missteps, especially ahead of critical policy decisions, could spook investors and disrupt economic activity. After an extended bull run, the market is vulnerable to short-term corrections or sector rotations. Such pullbacks are healthy but could test investor sentiment.

What diversification strategies can help reduce a portfolio’s exposure to market volatility?

Diversification is key to managing investment risks. There are practical strategies that investors can adopt to minimise risks. This should begin from diversification of assets classes in line with the investment objectives and risk tolerance of an investor. 

Combination of equities (for growth) with fixed income (for stability) is a risk-aversion measure. Add real assets like real estate or commodities (e.g., gold) for inflation protection and alternative correlation.

Spread investments across unrelated sectors e.g., financials, healthcare, consumer goods, industrials, and technology to cushion sector-specific shocks. For currency diversification, an investor can hold assets denominated in stronger currencies (USD, EUR, GBP) to hedge against Naira depreciation and local inflation. Consider USD-denominated Eurobonds or global mutual funds.  Time Diversification of Naira-Cost Averaging is another way to hedge against risk. Invest periodically rather than lump-sum. This strategy smooths out entry-point risk and minimises the effect of short-term volatility. In the area of time diversification, balance growth stocks (for upside potential with value stocks for downside protection while a combination of large-cap for stability and small-cap for aggressive growth investments are appropriate. There is a need for rebalancing of portfolio. An Investor through his stockbroker can review and adjust portfolio periodically to maintain a clear risk profile and avoid overexposure to any asset class. 

Diversification doesn’t eliminate risk but it aligns your investments with your goals and tolerance for risks. 

Which sectors are more resilient during market downturns?

Defensive sectors tend to perform better or remain stable during market downturns due to steady demand for the companies’ products and essential service offerings. These include consumer staples, food and beverages, and household essentials. They are always on in demand regardless of economic cycles. For instance, products of Nestlé Nigeria, Unilever, Dangote Sugar, Honeywell Flour are always are consumed all the time. Similarly, health products and services are non-discretionary and often supported by public and donor funding. This enables many investors to buy stocks of companies such as May & Baker and Fidson Healthcare. In the Telecommunications sector, connectivity has become essential. Telecom firms such as MTN, Airtel, Globacom etc benefit from consistent cash flow and high service demand.  Large, well-capitalized banks with diversified income streams e.g., treasury operations, gains from forex boost operations of Zenith Bank, GTCO, Stanbic IBTC.and enable them to weather downturns better. Food security is prioritised during economic hardship, supported by import substitution policies. Favourable Agricultural Policies will always boost operations of companies like 

Okomu Oil, Presco and Livestock Feeds.

What are some key indicators that a market correction may be imminent?

While no single indicator guarantees a market correction, a convergence of warning signs may point to an impending pullback:Weakening macro-economic Indicators such as rising inflation without wage growth, sluggish Growth Domestic Product (GDP), high unemployment, declining consumer and business confidence, monetary policy tightening, rapid rate hikes by the CBN, reduced liquidity through Open Market Operations (OMO) or Cash Reserve Ratio (CRR) tightening, forex market distortions

disappointing corporate earnings, missed  earnings targets or downward revisions, missed forward guidance, eroding confidence, poor market breath, a few large-cap stocks driving index, when performance of broad-based participation signals fragility, overstretched valuations, above historical averages of P/E, P/B, and P/S ratios, market pricing in excessive optimism, political and regulatory uncertainty, election risk, policy inconsistency, or civil unrest, major indices falling below key moving averages e g., 50-day, 200-day, sharp Naira depreciation or worsening FX liquidity, flight to safety and rotation from equities into fixed income or money markets

What is your advice to investors at this time?

Participate, but with caution. The current rally is supported by improving fundamentals. But the market remains policy-sensitive and sentiment-driven. Strategic positioning is key. Stay committed to your long-term strategy. Accumulate quality stocks gradually using Naira-cost averaging. Focus on fundamentals and dividend growth over short-term price movements.  Leverage Fixed Income for Stability. Explore short-tenor FGN bonds and treasury bills yielding above 20 per cent. Consider corporate commercial papers from top-rated firms and Eurobonds for dollar exposure.

Monitor Macroeconomic Indicators such as inflation data, interest rate trends, CBN policies, forex reserves, and corporate earnings. Be selective with momentum trade by avoiding overhyped or illiquid penny stocks, lacking fundamentals. Stick to stock of quality companies with clear growth visibility. Take profits and rebalance. If you have realised strong capital gains, consider locking in profits and reallocating to value stocks, fixed income, or defensive sectors. Maintain a cash buffer- 10–20 per cent- for future buying opportunities. Above all.  contact your Stockbrokers before you make any investment decisions.