Non-bank stocks are projected to be the driving force behind the equities market, potentially resulting in a 12.5 percent return by end of the year – compared to the 13 percent loss at end of 2022 – according to a Quarterly Strategy Report published by fund management house DataBank.

The report, titled ‘New Beginnings: Non-Bank Equities Take Centre Stage as Investors Navigate Debt Market Reset’, suggests that investors will continue to seek solace in the stock market, specifically in telecommunications, oil marketing and agricultural stocks, as they remain cautious of the debt market and shy-away from banking stocks due to the broad downturn caused by the Domestic Debt Exchange Programme (DDEP).

“We maintain our year-end GSE CI prediction of 12 percent YtD (± 500bps), and anticipate the overall market index to moderate around its current level until year-end. We expect investors to keep avoiding financial equities in favour of telecommunications, oil marketing and agricultural stocks while remaining cautious about fast-moving consumer goods (FMCG) counters,” DataBank stated in their report.

Despite the three recent taxes introduced by government causing consternation among businesses, Databank noted that these taxes will not fundamentally change their sector preferences. Under the recently implemented Growth and Sustainability Tax (GST), banks, insurance businesses, telecom companies, oil marketing companies and breweries will be required to pay 5 percent of their pre-tax profit, while other consumer goods companies will contribute 2.5 percent of the same.

Sectorial outlook

In its sector-specific projections, Databank stated that market-leader MTN will continue rising in the telecom sector, despite already appreciating by 43 percent sincethe beginning of the year.

“We are bullish on the telco, as the company continues to generate outstanding profits on the back of its investments in network infrastructure coupled with its diversified digital offerings that underpin its market dominance,” the report predicted, despite an expected cooling-off in the near-term as investors’ profit-taking activities come to bear.

In the agricultural sector DataBank expressed optimism about Benso Oil Palm Plantation, expecting it to set new record highs due to the company’s consistent profitability – driven by high crude palm oil prices on the global market.

Regarding oil marketing, DataBank has revised its optimistic position following OPEC+ members’ announcement to reduce crude oil supply. This development is expected to potentially shrink profit margins for oil marketers. Additionally, the recent introduction of a 5 percent GST on profit before tax (PBT) is predicted to further compound the margin pressures that arise during periods of elevated crude oil prices.

While FMCGs hold medium-to-long-term potential, DataBank currently does not favour them, particularly for investors with a short-term horizon. The firm predicts that FMCGs will face high-cost pressures, weak demand, inflationary concerns, high input costs and increased taxes, which will likely keep their margins below historic levels.

“We expect that fast-moving consumer goods (FMCGs) will continue to face high-cost pressures in the near-term, keeping their margins substantially below historic levels due to multiple headwinds; such as weak demand, inflationary concerns, high input cost and increased taxes. We anticipate that the 20 percent increase in excise tax on imports of finished sweetened beverages and spirits, and the utility tariff increases – effective from February 2023 – will exert additional pressure on the margins of FMCGs. Notwithstanding, the easing exchange rate pressures for imported raw materials are expected to partially mitigate the margin pressures,” the report elaborated.

Financial stocks are expected to continue struggling in the short-to-medium-term due to impacts of the domestic debt exchange (DDEP) on profitability and declining interest rates, resulting in compressed net interest margins.

Already, checks by the B&FT indicate that at the beginning of the third trading week in May, seven out of the 11 – 63 percent – listed banking stocks were trading at their lowest stock prices in the last 12 months. This saw the GSE Financial Stocks Index (GSE-FSI) fall to a year-to-date loss of 16.07 percent at close of the second trading week in May.

However, DataBank believes that banks could benefit from increased credit demand – which may support their interest incomes and profitability in the medium- to long-term.

The GSE-CI has witnessed a marked recovery since the middle of March this year, rising from 2,391.8 points on March 8, to 2,721.17 points on May 12 – with a market capitalisation of GH¢68.1billion.