The equities market was on an upward trajectory, with NASI, NSE 20, and NSE 25 gaining by 1.3, 1.5, and 0.5 percent, respectively, taking the YTD performance to losses of 10.3, 1.8, and 5.0 percent for NASI, NSE 20, and NSE 25, respectively.
The equities market performance was mainly driven by gains recorded by large-cap stocks such as Bamburi, Diamond Trust Bank (DTB-K), Safaricom, and KCB Group of 7.0, 3.4, 2.8 percent, and 1.1 percent, respectively.
The gains were however weighed down by losses recorded by stocks such as BAT and Stanbic Bank of 2.9% and 2.7%, respectively.
During the week, equities turnover increased by 13.4 percent to USD 11.5 mn from USD 13.2 mn recorded the previous week, taking the YTD turnover to USD 359.8 mn.
Foreign investors remained net sellers, recording a net selling position of USD 1.3 mn, from a net selling position of USD 3.4 mn recorded the previous week, taking the YTD net selling position to USD 42.3 mn.
The market is currently trading at a price-to-earnings ratio (P/E) of 6.0x, 51.8 percent below the historical average of 12.5x. The dividend yield stands at 8.3%, 4.1% points above the historical average of 4.2 percent.
Key to note, NASI’s PEG ratio currently stands at 0.8x, an indication that the market is undervalued relative to its future growth.
A PEG ratio greater than 1.0x indicates the market is overvalued while a PEG ratio less than 1.0x indicates that the market is undervalued.
Rates in the Fixed Income market have remained relatively stable due to the relatively ample liquidity in the money market.
The government is 14.4 percent ahead of its prorated borrowing target of Kshs 330.2n having borrowed 378.1 billion shillings of the new domestic borrowing target of 425.1 billion shillings as per the February 2023 revised domestic borrowing target for FY’2022/23.
We believe that the projected budget deficit of 5.7 percent is relatively ambitious given the downside risks and deteriorating business environment occasioned by high inflationary pressures.
Further, revenue collections are lagging behind, with total revenue as of February 2023 coming in at Kshs 1.3 trillion in the FY’2022/2023, equivalent to 59.8 percent of its target of 2.1 trillion and 89.7 percent of the prorated target of 1.4 trillion.
Therefore, we expect a continued upward readjustment of the yield curve in the short and medium term, with the government looking to bridge the fiscal deficit through the domestic market. Owing to this, our view is that investors should be biased towards short-term fixed-income securities to reduce duration risk.
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