NGX low-cap stocks drive rally as market gains 29.11% YtD

As of the close of trading on March 27th, the NGX equities market recorded a year-to-date (YtD) gain of 29.11%, higher than the 2.66% recorded in the same period last year and already more than half of the 51.19% return posted in 2025.

Market activity shows that the rally has been largely driven by low market capitalization stocks, which have outperformed mid- and large-cap stocks in terms of price appreciation.

**What the data are saying **

Data from NGX trading activity indicates that low-cap stocks have dominated price performance in the current rally.

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• Ten low-cap stocks, with a combined market capitalization of about N210 billion, emerged as the top performers, each recording gain of over 300% year-to-date.
• These include Zichis Agro Allied, Fortis Global Insurance, John Holt, Premier Paints, Red Star Express, SCOA, DEAP Capital, RT Briscoe, NCR, and Infinity Trust Mortgage.

In comparison, stocks worth over one trillion naira in market capitalization (SWOOT), about 24 in total, recorded an average YtD gain of 32%, with the highest return coming from Aradel’s 88% YtD gain.

• Other top gainers include BUA Cement, Nestlé, Zenith Bank, Lafarge, Okomu, Seplat, MTN Nigeria, Presco, and Stanbic IBTC, all of which recorded double-digit gains.

However, when viewed from a market capitalization perspective, the story changes. While low-cap stocks dominate in percentage returns, their contribution to overall market value remains relatively small.

• The 10 low-cap stocks collectively added about N146 billion in market capitalisation, compared to over N27 trillion added by 24 SWOOT stocks.
• This suggests that, despite the outsized returns in smaller names, the bulk of market value creation is still being driven by large-cap stocks.

**What you need to know **

The key thing to note based on the market trend is to decide whether to chase high returns in low-cap stocks or focus on fundamentally strong mid- and large-cap companies.

If for returns, a key indicator to consider is the position of stocks relative to their 52-week highs. For instance, data show that several of the top-performing low-cap stocks, including Zichis Agro Allied, John Holt, Premier Paints, NCR, and Infinity Trust Mortgage, are already trading at or near their peak levels, suggesting limited upside potential.

Also, the fundamentals of the companies must be taken into consideration. Choose companies with strong fundamentals, strong revenue and earnings growth.  It is not a sound investment strategy to invest in companies with weak or declining earnings

While some low-cap stocks such as Zichis Agro Allied, NCR, Infinity Trust Mortgage, and SCOA have reported earnings growth, others including Fortis Global Insurance, John Holt, Premier Paints, DEAP Capital, and RT Briscoe, continue to post weak or declining earnings.

Valuation metrics are another important factor. It is generally not a sound investment decision to buy stocks with elevated price-to-earnings and price-to-sales ratios. Some of these low-cap stocks, such as Premier Paints, DEAP Capital, RT Briscoe, and NCR, are trading at negative price-to-book ratios, while others show extreme price-to-sales levels.

Investors must ensure that the stock price is reasonable relative to earnings. Even where prices appear high, they should be justified by strong earnings growth. This is where fundamentals become critical.

**More insights **

The ongoing rally reflects strong liquidity and investor participation but also points to a growing influence of sentiment and momentum in driving market performance.

• Historically, rallies led by speculative interest in low-cap stocks tend to be less sustainable, especially when not supported by earnings growth.
• For new investors, entering stocks already trading at or near their highs reduces the margin of safety and increases exposure to downside risks in the event of a correction.
• A more balanced approach would involve diversifying across low-, mid-, and large-cap stocks to manage risk while maintaining exposure to growth opportunities.
• For existing investors who have benefited from the rally, taking partial profits may help lock in gains while reducing exposure to potential volatility.

Ultimately, while short-term gains may be driven by market momentum, long-term returns are more likely to be sustained by companies with strong earnings growth, solid balance sheets, and consistent financial performance.