Market Performance Overview

The equities market recorded a strong rally in February 2026, extending the positive momentum observed at the beginning of the year. During the month, the NSE 20, NSE 25, NSE 10 and NASI indices gained 13.7%, 11.8%, 10.8% and 10.6%, respectively. The performance was largely driven by a re-rating of banking counters and renewed investor interest in large-cap stocks.

The rally was led by Stanbic, KCB and DTB-K, which gained 29.5%, 20.7% and 20.0%, respectively. The magnitude of gains in these counters suggests improving investor sentiment towards the banking sector, supported by declining interest rates, improving liquidity conditions and expectations of credit growth recovery.

On a weekly basis, the upward trajectory persisted. The NSE 10, NSE 25, NSE 20 and NASI gained 4.4%, 4.3%, 3.5% and 3.0%, respectively. Year-to-date performance now stands at 19.4% for the NSE 20, 16.2% for the NSE 25, 15.3% for NASI and 14.8% for the NSE 10.

Weekly gains were primarily supported by ABSA, BAT and Standard Chartered Bank Kenya, which rose by 13.2%, 10.1% and 7.7%, respectively. The rotation into defensive and dividend-yielding counters reflects selective positioning as valuations adjust upward.

Banking Sector Performance

The banking sector remained the primary driver of market performance during February.

The banking index rose by 14.4% month-on-month to close at 245.9 from 215.0 at the end of January. Gains in Stanbic, KCB and DTB-K accounted for most of the index movement, reinforcing the sector’s leadership in the current rally.

On a weekly basis, the banking index gained 5.7%, supported by strong performance in ABSA, Standard Chartered and KCB. The continued strength of banking counters indicates sustained investor confidence in the sector’s earnings outlook amid easing monetary conditions and improving asset quality trends.

However, the pace of gains suggests that valuations in select counters are beginning to reflect much of the near-term recovery narrative.

Market Liquidity and Foreign Participation

Market activity strengthened materially in February.

Equities turnover increased by 75.0% month-on-month to USD 182.9 mn, compared to USD 104.5 mn recorded in January. The surge in activity points to increased participation from local institutional investors and tactical positioning by market participants.

Despite the rally, foreign investors remained net sellers during the month, recording net outflows of USD 29.4 mn compared to USD 8.4 mn in January. This divergence suggests that the current rally is largely domestically driven.

During the week, turnover rose by 21.6% to USD 54.7 mn. However, foreign investors remained net sellers for the fourth consecutive week, with outflows of USD 10.0 mn. Year-to-date foreign net selling now stands at USD 37.8 mn, significantly lower than the USD 92.9 mn recorded in 2025 over a comparable period.

The continued foreign selling, even as indices rise, indicates cautious positioning from offshore investors amid global risk considerations.

Corporate Highlight

British American Tobacco Kenya – FY’2025 Results

British American Tobacco Kenya reported a 17.0% increase in profit after tax to Kshs 5.2 bn in FY’2025, up from Kshs 4.5 bn in FY’2024.

The improvement in profitability was primarily driven by cost rationalization and a significant turnaround in finance costs. Cost of operations declined by 14.6% to Kshs 15.7 bn, reflecting efficiency measures and lower volumes. In addition, net finance costs shifted from a Kshs 0.8 bn loss in FY’2024 to a Kshs 0.2 bn finance income in FY’2025, largely due to exchange rate stability and prudent cash management.

These gains offset a 12.5% decline in gross sales and a 9.8% decline in net revenue, highlighting margin resilience despite top-line pressure.

Earnings per share rose to Kshs 52.5 from Kshs 44.8, reflecting improved shareholder value generation. The company declared a total dividend of Kshs 70.0 per share (interim plus final), representing a 40.0% increase compared to FY’2024. The dividend payout ratio increased to 133.4%, indicating strong cash generation but also a relatively aggressive distribution policy.

However, regulatory uncertainty remains a key risk. The proposed Tobacco Control (Amendment) Bill, 2024 introduces potential changes to marketing restrictions and product approvals, which could affect future operating flexibility. Additionally, persistent illicit trade continues to distort the competitive landscape and exert pressure on legitimate volumes.

While FY’2025 results reflect operational discipline and financial resilience, medium-term performance will depend on regulatory clarity, pricing power and effective management of market distortions.

Overall Market Assessment

February 2026 was characterized by strong equity market performance led by the banking sector, rising turnover and sustained domestic participation.

The rally reflects improved macroeconomic stability, easing interest rates and renewed confidence in corporate earnings. However, the persistence of foreign outflows suggests that global investor sentiment toward frontier markets remains cautious.

Going forward, market direction will likely depend on:

• Sustainability of earnings growth in banking and large caps
• Progress in monetary easing and credit expansion
• Regulatory developments in key sectors
• Foreign investor re-entry

While momentum remains positive, the pace of gains warrants selective positioning rather than broad-based exposure.