With the gradual return of bulls to the stock market, operators have renewed call for the government to develop focused strategies targeted at boosting operations of listed firms, to stimulate investments and sustain the current rally in the market.
The operators, who spoke against the backdrop of an unprecedented rally witnessed in the market since the second quarter of 2020, maintained that this is the appropriate time for the government to implement policies that would help revive the primary market segment and attract new issues into the market.
According to them, initial public offerings (IPOs) will boost investment interest and stock market average in terms of volume of activities and contributions to the gross domestic product (GDP), which is currently rated low when compared to other emerging markets.
In addition, it would deepen the market and enable it provide the needed funds required to fortify the equity standing of listed companies that are now at the brink of debt overhang.
At the Nigerian Stock Exchange (NSE) 2020 Market Recap and 2021 Outlook, held recently, the Chief Executive Officer of the Exchange, Oscar Onyema, said while the value of supplementary issues increased over 800 folds, the IPO activity was mute.
He said: “At the close of the year, the NSE’s equity market capitalization was up by 62.42 per cent, from N12.97 trillion in 2019 to N21.06 trillion in 2020 while market turnover saw an uptick of 7.25 per cent, from N0.96 trillion in 2019 to N1.03 trillion in 2020.
“Although IPO activity was mute, the value of supplementary issues increased dramatically from 2019, rising by 851.37 per cent to N1.42 trillion, from N148.77 billion.
“Also noteworthy is that for the second consecutive year, equity market transactions were dominated by domestic investors, who accounted for 65.28 per cent of market turnover by value (Retail: 44.98 per cent; Institutional: 55.02 per cent) while foreign portfolio investors accounted for 34.72 per cent.
“Capital-raising activities in the fixed income market increased significantly in 2020. The NSE’s bond market capitalization rose by 35.52 per cent from N12.92 trillion in 2019 to N17.50 trillion.”
Commenting on the need for IPOs, the Vice President, Highcap Securities, Imafidon Adonri, said: “If this unexpected transformation in the equities secondary market is not used as a tonic to revamp the primary market, no useful gain would have been achieved by the economy. The primary market is the essence of the capital market. It forms equity capital, which the Nigerian economy direly needs to create wealth and generate productive employment for the teeming youths.”
He argued that for issuers to approach the market to raise capital there must be some reasonable level of recovery in the economy to sustain the current bull run.
He added that there was a need for the government to initiate strategic policies that would grow businesses in Nigeria, while stockbrokers must also ensure that issuers raise money in a manner that is competitive and less expensive.
“We need an economy where issuers can see growth. The growth must impact on their businesses and it is when the business expands that companies can approach the market to raise capital.”
Specifically, he charged the Federal Government to re-strategise and address current macroeconomic concerns impeding economic stability and promote issues of national development, to tackle prevailing stock market volatility, restore the market to sustainable rebound, and attract new issues to the nation’s bourse.
The Head of Research, FSL Securities, Victor Chiazor, said the government can help attract new offers to the market by introducing favourable policies targeted at only listed entities. He said this would serve as incentives and ultimately encourage more companies to list on the Exchange.
“Listed companies over the years have benefited from increased brand visibility and the ability to raise long term funds from the market amongst other benefits. And the market still offers such benefits to new offers.
“However, companies will only be interested in listing when they see visible benefits of such listing to their business operations. That is why it will be a positive move for a few government policies to be targeted to only listed firms to entice those companies that are yet to be listed.
“If we can attract more listing, it gives more investment options to the investor and makes our capital market more robust.”