It was not cheery news on the trading floor of the Nigerian Exchange Limited (NGX) as activities on the stock market took a negative turn last Tuesday following the increase of the Monetary Policy Rate (MPR) for the third consecutive time to stabilise prices.

Indeed, aggressive monetary policy tightening by the Central Bank of Nigeria (CBN), which has pushed the MPR from 14 per cent to 15.5 per cent to curtail rising inflation has ripped the stock market off over N96 billion within three trading sessions.

The capitalisation of listed equities, which stood at N26,547 trillion on the eve of the pronouncement on Monday, September 26, 2022, depreciated by N96 billion ( In three trading sessions) to close at N26, 451 trillion on Friday while the all-share index (ASI), which measures the performance of quoted companies slumped by 194.19 points or 0.4 per cent from 49, 218.35 to 49,024.16.

In a sharp reaction to the pronouncement, the equities market reversed previous gains to close the market with N15 billion loss.

Consequently, most of the blue-chip stocks pushing market capitalisation; Nestle, Bua cement, MTN Nigeria and GTCO have been on a downtrend since the pronouncement weighing the index through massive sell off in very high traded volume and negative market breadth.

Indeed, the low valuation of NGX, high earnings and dividend yields on improved earnings released so far in the year, coupled with the expectation of third-quarter corporate earnings have failed to push the market indices as sell-offs in large company shares dragged the key performance indices amid inflation hitting 17 years high above 20 per cent.

The development has caused investors to stay on the fence, waiting to confirm market direction before jumping in, as the outlook for the economy remains unpredictable.

Chief Research Officer of Investdata Consulting, Ambrose Omordion, confirmed that the rate hike adjustment has further triggered another round of selling pressure in the market, as a result of ‘aggressive hawkish monetary policy across the globe.

He argued that the policy stance may not necessarily curb inflationary pressure given that the pressure is not coming from monetary factors alone but from high costs of petroleum products, electricity and insecurity, as well as the rising exchange rate.

Therefore, he suggested that the economic managers should influence some fiscal moves to tackle the rising insecurity and problem of food shortage in Nigeria.

“As the nation’s high debt profile would not survive this rising rate, especially as the World Bank and IMF continue to warn central banks to rethink and avoid pushing the global economy into recession.

“We see that is already happening in the UK, China, Japan and others. It is time for the Nigerian central bank and its Monetary Policy Committee to have a rethink before things go out of hand,” he warned.

A look at market activities in the corresponding period when investors were taking a position for the third quarter earnings and interim dividend declaration in 2021 showed that the stable interest rate which was in favour of the equities market triggered a massive mop-up in shares in the stock market and caused massive price appreciation across sectors.

For instance, the shares of GTCO, United Bank for Africa (UBA) and Unity Bank which stood at N27.90 kobo, N7.60 kobo and 52 kobo as at September 29, 2021, depreciated to N17.80 kobo, N6.95 kobo and 43 kobo as at September 29, 2022.

Similarly, the shares of AIICO, Axamansard, Sunu, Cornerstone and Lasaco in the insurance sector, declined from 95 kobo, N2.43 kobo, 45 kobo, 58 kobo and N1.19 kobo to 52 kobo, N1.67 kobo, 32 kobo, 56 kobo and 90 kobo respectively within the period.

Under the agro-allied subsector, Ella lakes and FTN Cocoa suffered the same faith, as the stocks depreciated from N4.25 kobo and 48 kobo to N3 60 kobo and 29 kobo.

Price appreciation within the same period in 2021 may be attributed to the prevalent low-interest rate and high inflation environment 2021 which caused real return on equities to be -10.91 per cent and debt to be -10.65 per cent.

Recall that after the expansionary monetary policy of H2, 2020 drove the yields on debt instruments to low single-digit.

The yield on the 364 day treasury bills was around 5.34 per cent and 10-year bond hovered around 12.5 per cent at the end of Q3 2021.

With the attractive yield on bonds and impressive corporate fundamentals, the secondary market segment of the stock market from Q3 2021 became very bullish.

The positive outlook extended into the first quarter (Q1), 2022 causing improved corporate performance and impressive scorecards churned out by quoted companies to lift market capitalisation by N3.02 trillion in the first quarter of 2022.

According to data obtained from the NGX within the period, market capitalisation soared by N3.02 trillion to close on March 31, 2022, at N25.312 trillion, higher than the N22.297 trillion it opened for trading activities on January 4, 2021.

The ASI also advanced by 9.95 per cent to close at 46,965.48 basis points in the first Q1, 2022. Sectoral performance was also upbeat as most indices closed the period on an upward note.

The NGX Oil and Gas Index appreciated the most by 28.12 per cent. It was closely followed by the NGX Banking Index, which recorded a gain of 8.55 per cent, while the NGX Premium Board Index rose by 6.34 per cent. Others were the NGX Pension, NGX Industrial Goods, NGX 30 and NGX Lotus II that went up by 6.34 per cent, 5.63 per cent, 5.39 per cent, 4.37 per cent, and 1.18 per cent, respectively.

However, after the first hike in interest rates on May 2022, the (NGX) sustained losses for the third consecutive session to commence trading for June on a downward note yesterday, as market capitalisation dropped further by N9 billion.

At the re-opening of transactions for June, the All-Share Index fell by 16.13 absolute points, representing a decrease of 0.03 per cent to close at 52,974.15 points. Accordingly, investors lost N9 billion in value as market capitalisation declined to N28.559 trillion.

On market performance, GTI Securities predicted a market downturn as fixed income rates continue to be appealing to investors in the near term.

Also, Vetiva Dealings and Brokerage said the month of June kicked off on a relatively tepid note as investors continue to trade cautiously given the higher yields in the fixed income space and current bearish sentiment in the equities market. The hike in interest rate in June 2022 also caused equities to lose 3.4 per cent in that month.

Although the market finished the half year (H1) in an upbeat appreciating by N5.64 trillion or 25.3 per cent to close at N27.935 trillion in H1 2022, from the N22.297 trillion it opened for trading activities on January 4, 2022, occasioned by bargain hunting and investors’ repositioning ahead of the 2021 full year dividend declarations but the market subsequently plunged into a downturn in July 2022 with the announcement of the second interest rate hike.

The ASI which increased by 0.9 per cent between July 1 and 19, 2022 subsequently dipped by 2.8 per cent at the end of July 2022 from 51,829.67 recorded at the beginning of the month (July 1, 2022) to 50,370.25.

The downturn extended to August 2022, as sell-offs in most highly capitalised stocks, especially BUA Cement, dragged capitalisation by N227 billion. The index decreased by 419.93 absolute points, representing a decline of 0.83 per cent to close at 49,950.32 points. Similarly, the market capitalisation lost N227 billion and closed at N26.936 trillion.

Since then, the market has continued on a decline, shedding 5.6 per cent between August 1 and September 27, 2022, even as analysts predict a gloomy outlook amid rising insecurity in the country and other macroeconomic challenges, coupled with uncertainty in the global economy.

Segun Ajibola, a former President of the Chartered Institute of Bankers of Nigeria (CIBN) and professor of economics at Babcock University argued that the hike in MPR is a direct reaction to the inflationary pressure in the economy; and the increase in money demand by manufacturers and importers to procure the needed foreign exchange.

He pointed out that if more Naira is needed to sustain the level of economic transactions, both local and foreign, it will reduce investible funds in the economy and constrain activities in the capital market.

A professor of economics at Olabisi Onabanjo University, Ago-Iwoye, Sheriffdeen Tella, said raising the interest rate implies that cost of borrowing from banks will rise.

According to him, this can send businesses listed on the stock exchange to seek expansion funds from the stock market thus raising activities in the market.

However, he stated this cannot resort to more capital inflow because of the devalued nature of the nation’s currency.

Also contributing, Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka, said investors initially reacted adversely to two quick successions in MPR hike by holding back further investment in equity on one hand, and repricing existing securities across markets and instruments on the other hand.

“The essence was to see how the MPC of CBN would react to an aggressive rise in inflation (22.52 per cent) in August 2022, which subsequently attracted a further hike to 15.5 per cent in September.

“So, investors will exercise caution at this time, waiting to see what will become of yields in the fixed income space after the third hike in quick succession.

“We are in a period of extended repricing of instruments and assets, including loans and advances. And given the fact of low prices, it will not be long before the market begins to recover gradually to more appreciable levels,” he said.