The Nairobi Stock Exchange (NSE) Sectors Reconfigured

A sector is a group of securities or a distinct subset of a market, society, industry, or economy
whose components share certain common characteristics e.g. providing the same types of
products or services. Thus a sector consists of companies in closely related businesses1 .Stocks
within a sector tend to move together because companies within the same industry group are
affected in similar ways by market and economic conditions.
For example, the utility sector provides electric power, natural gas, water, or a combination of
these services. A change in the market and economic conditions is most likely to affect the
companies in this sector in similar ways. Sector analysis therefore allows a better analysis and
comparison of stock performance within a specific sector (some firms are able to withstand or
take advantage of changing market and economic conditions better than others) as well as an
analysis and comparison of different sector performances (different sectors will perform
differently as the market and economic conditions change).
The current configuration of the NSE sectors groups unrelated firms within the same sector heading.
For example Kenya Airways Ltd., Safaricom Ltd. and Nation Media Ltd. have been grouped together
under the Commercial and Services sector yet these companies provide dissimilar products or services
and represent unrelated businesses. Their stocks have very little correlation. For a better comparison of
sector performance, these stocks would need to be grouped under different sector categories as current.
1
These are firms that are on the same side of the market, produce goods or services which are close substitutes
and compete for the same customers.
-1- © 2010 PK Mwangi Global Consulting

Another example is that of Bamburi Cement Ltd., East African Breweries Ltd., and Kenya Power &
Lighting Co. Ltd. which have all been grouped under the sector heading Industrial & Allied. Again
these are firms that are unrelated with their stocks have very little correlation.
As a result the present sector classification of stocks by the NSE does not allow a true analysis of sector
performance due to this inclusion of uncorrelated stocks within the same sector. Strong performance of
a set of correlated stocks (that should belong to the same sector) may be masked by the poor
performance of a different set of correlated stocks because all these have been grouped as members of
the same sector. This gives a misleading picture of sector performance under the current configuration.
To get a clearer assessment of sector and stock performance on the NSE, PK Mwangi Global
Consulting has reclassified the constituents of the NSE into more comprehensive and logical
sector categories and tracked the performance of identified sectors and sub-sectors on a monthly
basis from January 2008 to date.
This reconfiguration therefore allows a comparison of the performance of a given stock with that
of its peers within the sector or industry as well as a comparison of its performance against the
sector index and the market benchmark indices in this case the NSE-20 index and the NSE All-
share index. The investor is able to identify stock and/or sector winners and losers within any
given investment period and therefore adjust his portfolio allocation accordingly.
The tracking by PK Mwangi Global Consulting chooses monthly periods as the investment horizon and
shows which sectors and/or sub-sectors would have returned the most as well as their performances
vis-à-vis the benchmark indices on the NSE- the NSE All-share index and the NSE-20 index. One is
also able to track the annual return for individual sectors and subsectors again revealing out-performers
and under-performers for the year.
The reclassification of the sectors is shown below.
Using 1 January 2008 as the base date, we start off with an arbitrary number 100 (base value) chosen as
the starting point (in very much the same way as a benchmark index is derived) and track the monthly
performances of the various sectors and sub-sectors from this point onwards. These performances are
also compared with those of the NSE-20 index and the NSE All share index which are also assumed to
have the same base date- 1 January 2008. The comparison is shown on charts for the years 2008, 2009
and 2010.

Financials continue to hold the largest weighting on both the NSE All-share index and NSE-20 index
which stood at 64 per cent at the base date- 1 January 2008.
NSE sector reclassification

Sector Sub-sector Stock
Agriculture Rea Vipingo Ltd.
Sasini Tea & Coffee Ltd.

Kakuzi Ltd.
Williamson Tea Kenya Ltd.
Kapchorua Tea Co. Ltd.
Kenya Orchards Ltd
Limuru Tea Co. Ltd
Eaagads Ltd.
Industrials
Building & Construction
Athi River Mining Ltd

Bamburi Cement Ltd.
E.A Portland Cement Co. Ltd.
Beverages
E.A. Breweries Ltd.

Food Processors
Mumias Sugar Company Ltd.

Unga Group Ltd.
Other Industrials
British American Tobacco Kenya Ltd.

E.A. Cables Ltd.
Sameer Africa Ltd.
Crown Berger (K) Ltd.
Eveready East Africa Ltd.
A. Baumann & Co.Ltd.

Financials
Banks
Barclays Bank of Kenya Ltd.

CFC Stanbic Bank Ltd.
Kenya Commercial Bank Ltd.
National Bank of Kenya Ltd.
Diamond Trust Bank of Kenya Ltd.
NIC Bank Ltd.
Equity Bank Ltd.
The Co-operative Bank of Kenya Ltd.
Standard Chartered Bank Ltd.
Insurance
Pan Africa Insurance Holdings Co. Ltd

Jubilee Insurance Co. Ltd
Kenya Re-Insurance Ltd.
other Financials
Housing Finance Ltd.

Centum Investment Ltd.
Olympia Capital Holdings Ltd
City Trust Ltd.
Oil & Gas (Energy)

BOC Kenya Ltd
Kenya Oil Ltd.
Total Kenya Ltd.
Carbacid Investments Ltd.
Telecommunications
Safaricom Ltd.
Automobiles
Marshalls E.A. Ltd.
Car & General Ltd.
CMC Holdings Ltd.
Consumer Goods

General Retailers
Uchumi Supermarkets Ltd. Suspended

Hutchings Biemer Ltd. Suspended
Consumer Services
Media & Advertising
Nation Media Group Ltd

ScanGroup Ltd.
Standard Group Ltd.
Leisure, Entertainment & Hotels
TPS (Serena) Ltd.

Technology
Access Kenya Group
Transport
Kenya Airways Ltd.
Express Ltd
Utilities
Kenya Power & Lighting Co. Ltd.
KenGen Ltd.

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A sector is a group of securities or a distinct subset of a market, society, industry, or economy

-1- © 2010 PK Mwangi Global Consulting

The reclassification of the sectors is shown below.

-2- © 2010 PK Mwangi Global Consulting

NSE sector reclassification

Sasini Tea & Coffee Ltd.

Athi River Mining Ltd

E.A. Breweries Ltd.

Mumias Sugar Company Ltd.

British American Tobacco Kenya Ltd.

-3- © 2010 PK Mwangi Global Consulting

Barclays Bank of Kenya Ltd.

Pan Africa Insurance Holdings Co. Ltd

Housing Finance Ltd.

Oil & Gas (Energy)

-4- © 2010 PK Mwangi Global Consulting

Uchumi Supermarkets Ltd. Suspended

Nation Media Group Ltd

TPS (Serena) Ltd.

Access Kenya Group

-5- © 2010 PK Mwangi Global Consulting

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