NSE Rally Extends as Earnings Season Fuels Large-Cap Gains, Inflation Ticks Up to 6.6%

Kenyan equities continued their strong 2026 run through August, with the market drawing support from a robust first-half earnings season even as inflationary pressures and a cautious policy stance kept macro watchers alert.

Market Performance

The NASI advanced 5.7% month-on-month in August, pushing year-to-date gains to 34.2%, driven largely by large-cap counters. The NSE-20 tracked closely, also rising 5.7% M-o-M. By month-end, the NASI stood at 4,295.38 and the NSE-20 at 246.29.

Banking heavyweights led the charge:

• Equity Group gained 8.4% after posting 1H26 results showing profit after tax (PAT) up 32% Y-o-Y
• KCB rose 9.3% ahead of its book closure, buoyed by an interim dividend of KES 3.00/share — a 50% increase Y-o-Y
• Safaricom added 6.7%, further lifting the index

Small-Cap Standouts

The small-cap space saw even sharper moves:

• Car & General surged 65% M-o-M following 1H26 results, with PAT rising four-fold to KES 2.6bn and dividends jumping 333% Y-o-Y to KES 1.00/share
• Shri Krishna Overseas climbed 99% M-o-M
• Kenya Orchards rose 45% M-o-M, both driven by increased retail activity
• Other notable gainers: Unga (29%), DTB (28%), Carbacid (23%), I&M (17%)

Agricultural counters lagged badly, with Kapchorua Tea down 10% and Limuru Tea down 9%. Other decliners included WPP Scangroup (-1.4%), Standard Chartered (-1.7%), BAT (-2%), Stanbic (-3.77%), and Uchumi (-5.10%).

Year-to-Date Leaders

Among the strongest 2026 performers to date: Britam (+103.3%), I&M (+87.3%), DTB (+69.9%), Kenya Power (+64.7%), and BK Group (+58.2%). At the other end, Liberty is down 8.3% YTD — the only counter in negative territory on this list.

Macro Backdrop

Inflation edged higher to 6.6% Y-o-Y in August (from 6.5% in July), with the CPI rising 41bps M-o-M to 155.85. Food inflation printed at 9% Y-o-Y, while transport inflation hit 15.7% Y-o-Y on diesel prices up 27% and petrol up 15%. Despite the uptick, inflation remains within the Central Bank of Kenya’s (CBK) target range, and the Monetary Policy Committee held the policy rate steady at 8.75%.

Currency: The Kenyan Shilling held broadly stable at 129.45/USD (0.4% M-o-M change). FX reserves declined 2% M-o-M to USD 15.2bn, covering 6.4 months of imports.

Interest rates: Short-term yields were mixed — the 91-day T-bill eased 2.6bps to 8.77%, the 182-day dipped 1.5bps to 8.94%, while the 364-day ticked up 1.5bps to 9.03%. Liquidity conditions improved, with the overnight (Kesonia) rate falling 45bps and average interbank volumes jumping to KES 17.08bn from KES 6.7bn in July.

Global & Regional Context

• U.S. equities: S&P 500 up 2% M-o-M on lower oil prices and strong earnings
• Europe: MSCI Europe up a modest 0.3%
• Emerging markets: gained 3.8% M-o-M, led by Taiwan and South Korea on tech-export strength
• Regional Africa: South African equities rebounded 4% M-o-M on gold/precious metals strength; Nigeria dipped 0.4% but may see renewed interest following its FTSE Frontier Market reclassification; Uganda (+6.5%), Tanzania (+6.0%) and Rwanda (+1.6%) all posted gains

On a YTD local-currency basis, regional market leaders include Ghana (+71.7%), Tanzania (+61.6%), and Nigeria (+56.9%), with Kenya at 34.1% and South Africa the only market in the red (-0.3%).

Global risk factors flagged in the report include Brent crude approaching USD 97/bbl amid U.S.-Iran tensions near the Strait of Hormuz, and the U.S. 10-year Treasury yield rising to ~4.8% on renewed Fed rate-hike expectations following a stronger-than-expected August jobs report.

Kenya Growth Outlook Revised Down

The CBK cut its 2026 GDP growth forecast to 5.2% from 5.5%, while the World Bank revised its projection down to 4.4% from 4.9%, citing geopolitical uncertainty and inflationary pressure. Kenya’s actual 2025 GDP growth came in at 4.6%, moderating from 4.7% in 2024, with tea production down 8.0% and cane deliveries down 24.7% due to weak short rains.

On the credit side, Kenya’s sovereign rating trajectory has improved: Moody’s upgraded Kenya to B3 (from Caa1, Stable outlook), while S&P holds it at B (Stable), up from B- in August 2025. Fitch affirmed B- with a Stable outlook in January 2026.

NCBA-IB’s September Stock Picks

Out of the covered universe, KCB stands as the sole BUY, with a target price of KES 110.51 (12.8% upside) against a KES 98.00 current price and a 6.1% forward dividend yield.

SELL-rated counters include Family Bank (-27.2% downside to target), BOC Kenya (-37.5%), Carbacid (-37.2%), and Sasini (-27.7%) — reflecting NCBA-IB’s view that these have run ahead of fundamentals despite the market-wide rally.

The bank flagged that with the 34.2% YTD rally, focus is shifting from earnings momentum toward valuations, though continued search for yield amid an easing rate cycle should keep supporting equities.

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