Nigeria’s equity market is expected to deliver further gains in the second half of 2026, but investors are likely to face a more selective market as the benchmark approaches the 60 percent annual gain that VNL Capital considers its optimistic case.
The NGX All-Share Index gained more than 60 percent in the first half of the year, making Nigeria one of the strongest-performing equity markets globally. Market capitalisation also climbed from about N99 trillion at the start of the year to almost N160 trillion before a correction in June trimmed some of the gains.
VNL Capital said the rise was driven by banking recapitalisation sentiment, strong corporate earnings and renewed investor participation.
‘Further upside is anticipated,’ the investment firm said in its Markets on the Edge: How to Capture Maximum Upside H2 2026 outlook, but added that the room for gains becomes more limited once the NGX All-Share Index substantially exceeds its 60 percent optimistic case for the year.
The firm expects gains to become more selective rather than broad-based in the second half.
Corporate earnings releases, improving macroeconomic stability and potential market-deepening events such as major listings are identified as factors that could support positive sentiment below that level. Sustained earnings momentum and continued reform progress are the main supports for the market, while pre-election uncertainty, elevated interest rates and potential profit-taking are identified as the principal risks through year-end.
Oil and gas drove the first-half rally
The strongest sectoral performance came from oil and gas.
The NGX Oil and Gas Index gained close to 90 percent by the end of June, significantly outperforming other sectors. VNL Capital attributed the rally to elevated oil prices during much of the second quarter, alongside improved domestic production volumes, stronger security around assets and clearer signals from petroleum-sector reforms.
Aradel Holdings and Seplat Energy were identified as the key channels through which investors gained exposure to the sector.
The banking index also advanced steadily, supported by completed recapitalisation and solid earnings, although its cumulative rise was more measured. Consumer goods stocks attracted stronger buying interest following improved financial performance in 2025 and Q1 2026 among companies including BUA Foods, Dangote Sugar, Nestlé and Unilever.
Insurance stocks, by contrast, ended the half-year in negative territory, reflecting what VNL Capital described as persistent liquidity and confidence challenges.
The dispersion was also visible among individual stocks. Berger Paints gained 207.50 percent in the first half, CAP rose 153.77 percent, Ecobank Transnational gained 127.21 percent, Aradel rose 111.57 percent and Airtel Africa gained 111.22 percent.
At the other end, Aluminium Extrusion Industries declined 54.27 percent, Ellah Lakes fell 37.69 percent and Honeywell Flour Mills dropped 34.70 percent.
Economic growth remains close to 4 percent
The market’s performance has come against a Nigerian economy that VNL Capital says has shown resilience through the first half of the year.
Real GDP grew 3.89 percent year-on-year in Q1 2026, compared with 4.07 percent in Q4 2025 and 3.13 percent a year earlier. The report attributes part of the growth to naira stability, particularly the convergence between parallel and official exchange rates.
The Purchasing Managers’ Index remained above 52.5 in July, keeping manufacturing activity within expansion territory. VNL Capital said the PMI trend suggests Q2 2026 real GDP growth likely remained around 4 percent.
Growth remains predominantly non-oil. Non-oil activity accounted for 96.08 percent of real GDP in Q1, compared with 3.92 percent from the oil sector.
Oil-sector growth, however, slowed to 2.57 percent year-on-year in Q1 following lower production. OPEC data cited by VNL Capital showed Nigerian production falling 1.91 percent in Q1 to an average 1.38 million barrels per day from 1.40 million barrels per day in the previous quarter. The firm expects oil-sector growth to recover substantially in Q2 following a 9.87 percent increase in production to an average 1.53 million barrels per day.
External buffers have strengthened
Nigeria’s external position also improved during the first half.
Gross external reserves rose from approximately $50.47 billion at the end of May to $52.52 billion by July 17, already exceeding the CBN’s 2026 target. VNL Capital said the increase strengthened the country’s external buffers and reinforced the sense of foreign-exchange liquidity that supported the recent improvement in investor confidence.
Capital importation also rebounded strongly, rising to $10.37 billion in Q1 2026, an 83.8 percent year-on-year increase and a 61 percent quarter-on-quarter increase. Foreign portfolio investment accounted for 95.1 percent of total inflows.
The market also received a signal of improving accessibility.
In early July, SandP Dow Jones Indices placed Nigeria on its 2027 Country Watchlist for possible reclassification from its current Standalone status back to Frontier Market status. VNL Capital said the decision represents recognition that regulatory and structural reforms are beginning to address the foreign-exchange illiquidity and capital-repatriation problems that contributed to Nigeria’s earlier removal from frontier-market indices.
Domestic investors dominate market activity
Investor participation has increased sharply.
Equity-market transactions reached a record N9.61 trillion in H1 2026, equivalent to about 81 percent of total transactions recorded on the exchange in 2025. Domestic investors accounted for 87 percent of transactions, while foreign portfolio investors accounted for the remainder.
VNL Capital said the surge in activity and continued presence of international capital reflected growing confidence in the market’s improved accessibility and regulatory environment.
The firm nevertheless described the SandP DJI watchlist status as an encouraging milestone rather than an immediate upgrade.
Inflation and rates remain key risks
The outlook for equities is also tied to the path of inflation and interest rates.
VNL Capital expects inflation to remain around 15 percent under its most optimistic scenario for H2, while a worst-case scenario could push it closer to 17 percent. The firm said the trajectory of global crude prices will be particularly important to whether Nigeria’s disinflation trend continues through the end of the year.
The report also says Nigeria may not have sufficient room to cut interest rates if policy rates in major markets remain skewed towards hikes. A surprise decline in inflation to around 12 percent would, in VNL Capital’s view, create an opportunity for the CBN to reduce rates.
That leaves the NGX entering the second half with both stronger domestic fundamentals and significant risks.
VNL Capital’s central message is that the market can still rise, but the gains are likely to become more selective as the index approaches its 60 percent optimistic case.
The next phase, according to the report, will depend on sustained corporate earnings, continued reform progress and improving macroeconomic stability, while investors will have to contend with pre-election uncertainty, elevated interest rates and the possibility of profit-taking.