NSE Mid-Cap Earnings: What Q3 2024 Numbers Reveal About Sector Rotation

The aggregate picture: margin divergence across five sectors

Q3 2024 earnings filings for NSE mid-cap counters — defined here as companies with market capitalisation between KSh 2 billion and KSh 20 billion as at 30 September 2024 — revealed a pronounced divergence in operating margins that has not appeared with this magnitude since Q1 2022. Across the 28 mid-cap companies that had filed results by the cut-off date for this analysis, aggregate operating margins contracted by 1.8 percentage points year-on-year in manufacturing and distribution, while financial services mid-caps expanded margins by an average of 2.3 percentage points over the same period. The pattern is consistent with a sector rotation driven by two structural forces: rising input costs (particularly energy and imported raw materials priced in USD against a weakened shilling) weighing on goods-producing companies, and the high-interest-rate environment favouring companies with large net interest income lines. For investors currently weighted toward manufacturing, the Q3 data constitutes a measurable shift in the earnings composition of that sector — one that warrants reassessment of position sizing rather than a reactive exit. Conversely, financial services mid-caps showing margin expansion are doing so in a rate environment that the CBK has signalled may begin to moderate, which introduces a forward-looking qualifier to that expansion.

Sector-by-sector: what the data shows and what it does not

Manufacturing (8 companies): median revenue growth of 4.1% year-on-year, but median EBIT margin fell from 9.2% to 7.4% — a contraction of 1.8 percentage points, consistent with CBK data showing a 12.3% year-on-year increase in energy tariffs for commercial users. Distribution (6 companies): revenue growth of 6.7%, but gross margin compression of 2.1 percentage points, attributable to USD-denominated inventory costs against a shilling that depreciated approximately 8% against the dollar over the same period. Financial services (9 companies): net interest income grew 14.2% on average, driving the margin expansion; however, non-performing loan ratios also rose in six of the nine companies, suggesting that asset quality is the variable to monitor in subsequent quarters. Consumer goods (5 companies): the most mixed picture — two companies posted their strongest quarterly earnings in three years while three others saw revenue declines, a divergence explained by brand positioning and price-point sensitivity rather than sector-level forces. The editorial note that follows is clearly labelled as interpretation: the Q3 data, taken as a whole, is more consistent with a rate-driven sector rotation than with a broad economic deterioration. The NSE data alone does not confirm that view — it should be read alongside CBK monetary policy statements and KNBS GDP growth figures for a complete picture.