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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.

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

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.

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 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.

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

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.