As President Mohammadu Buhari officially received the details of the 2016 budget after it had been passed by the National Assembly two weeks ago, investors in the nation’s stock market have been expressing concerns on whether the prices of shares will go up or not.
Many also fear that the uncertainties that surround the budget from its submission stage and the time it was passed in to law is enough an indication that can lead to a change in the amount of dividends quoted firms pay to shareholders at the end of the financial year.
A cursory look at the current prices of equities in the market revealed that they are significantly down compared to the position they were in the corresponding period of the preceding year.
Available statistics from the Nigerian Stock Exchange (NSE) revealed that the market finished the first quarter with a loss of N1.146 trillion.
The market, which opened high at N9.850 trillion in capitalisation and 28,642.25 in index at the beginning of trading last January, closed last week Friday at N8.704 trillion and 25,306.22 index points, representing a loss of about N1.146 trillion or 11.63 per cent year to date.
Before the announcement of the budget recently, market watchers had blamed the downward swing in the market indices partly on the volatile exchange rate, which made major foreign shareholders in the market to dump their shares. They also decried the delay in releasing the budget, which according to them, is the government’s statement of policy for the current financial year.
Because budget announcement affects the prices of companies’ stocks, favourably or otherwise, many investment advisers counsel investors to delay investments until they know how the budget may affect business operations in general, and prices of stocks in particular.
Part of the budget enables investment experts to have an idea of the amount that government intends to spend on certain projects, and the document provides an insight into what the government intends to do in the fiscal year.
Tony Obuh, a shareholder and a retired bank treasurer, observed that: “the stock markets all over the world tend to react violently around the budget, because listed companies, either directly or indirectly, get benefit or get hurt by provisions of the budget.”
Okezie Boniface, the Chairman of Progressive Shareholders Association of Nigeria, said the fact that the budget was embroiled in controversy from its submission period and the time it was passed was enough for to have a negative impact on the prices of stocks and the eventual dividend to be paid by the companies.
His words: “You cannot insulate the stock market from what is happening in the country, especially from what happens to the budget. My hope is that the budget will be appropriately implemented because our problem over the years is that budgets have never been implemented in a way that will be beneficial to the people and businesses”.
To Matthew Ogagavoriua, a stockbroker and a chartered accountant, the beauty of the budget to the stock market is when the implementation brings back foreign investors who have exited the market in 2015.
“Our market witnessed divestment by foreign investors in 2014 and 2015. I think their return will do the market a lot of good but anything to the contrary will further slow down growth in the market”, Ogagavoriua said.
In his opinion on the possible impact of the 2016 budget on the stock market, the Chief Executive Officer, Network Capital Limited, Lagos, Ropo Dada, said: “I think the argument should be whether the implementation of 2016 budget will bring back the foreign investors, who left the market because of the foreign exchange crisis. My answer is no.
“The gap between the official foreign exchange market and parallel/black market can be close in the short-run but the stability of forex market is the minimum condition that can stimulate the growth of the market for now. The exchange rate is not what is important to the foreign investors but its stability because this will aid planning and forecasting.
“What is happening in the foreign exchange market now under the current budget will impact negatively on the capital market.”
Tunde Oyekunle, the Chief Operating Officer, Finawell Capital Limited, Lagos said “what is happening in the market is a reflection of the economy. Our economy is currently depressed as a result of a combination of factors.
“The only thing that can help to stimulate the economy is a right fiscal policy and a drive of appropriate monetary policy. What I mean is that fiscal policy, as we know, is about revenue and government spending. The government has done the budget and said that we are going to spend so, so and so amount. Moreover, government wants to increase its revenue from taxation and other sources by diversifying the economy. This will ensure an appropriate fiscal policy of the government.
“The other aspect is the monetary policy, which is handled by the Central Bank of Nigeria (CBN). It is so disappointing that the CBN recently increased the Monetary Policy Rate (MPR) to 12 per cent, which is not very good for the economy. When an economy is depressed, what is needed is an expansionary policy by reducing the MPR or sustaining it (leaving it unchanged), but the CBN, because it observed that inflation has gone up, also jerked up the MPR. This calls for concern because it will make borrowing to the real sector to be more expensive; it will reduce liquidity in the economy.
“What we need now is to release more liquidity into the system. It wasn’t an increase in money supply that made inflation rate to enter 11 or 12 per cent. CBN made wrong assumption. What made inflation to move up was the increase in Dollar price, that is, people are buying the dollar at a higher price. That is responsible for the inflation in the economy”.
“The reactionary measure shouldn’t have been to jerk up the MPR to 12 per cent. The CBN should have left the MPR as it was at 11 per cent because what is needed is to stimulate the economy”, he added.
He specifically said: “But that notwithstanding, in the long run, if the fiscal policy is well implemented and the government is generating more revenue – getting more revenue through taxation – and it is diversifying the economy and it (government) is spending appropriately within the budget, and the budget is efficient, the economy will become stronger and the capital market will be stronger because all the quoted companies will be able to post better results. When this happens, there will be more patronage from both the local and foreign investors. The economy will be vibrant and more companies will come and list on the Nigerian Stock Exchange.
“Nigeria will be a very good business venue for people globally. So, I believe the budget will impact positively on the capital market.”