Correction Ahead On NGX, Amid Rotations, Positioning For Year-end

Market Update for November 22

The seesaw movement witnessed in recent times on the Nigeran Exchange resurfaced at the midweek as selling sentiments hit some blue-chips, weighing on the composite NGX All-Share index forcing it to close marginally lower. This halted the gain recorded at the previous session on a less than average traded volume but positive market breadth. Despite the pullback, buying interests and positive momentum were witnessed in low and medium cap stocks, especially among the financial services providers.
Also, the primary TB auction held at midweek, the 91-day, 182-Day and 364-Day instruments closed with stop rates at 8%, 125 and 16.75% respectively, from 7%, 11% and 16.75% recorded at the previous auction, while 91-day and 182-day saw increase in yields as 364-day was flat.
The ongoing portfolio rebalancing ahead of year-end and dividend season continues, as market players prepare for the 2023 audited full-year earnings reporting season which kicks offs in January 2024, a glimpse of which has been provided by the unaudited 2023Q3 earnings reports. Specifically,, the earnings reports presented through the exchange has offered an insight into the high possibility of dividend growth, rather than a cut at the end of this current financial year. This is especially true of companies in the service sectors whose earnings yield and Earnings Per Share support high payout ratios at the end of the day, while manufacturing companies and others may struggle to pay dividends commensurate to their current market price.
The divergence between the index’s action and momentum indicators signals the onset of correction that is underway or continuation of trend that needs to be confirmed, as the NGX index is still ranging and consolidating to trade above the T-Line and 71,000 mark, pulling back from the previous session’s level. Traders need to watch out as the market consolidates at this level of distribution phase amidst the high volatility. The stock market remains the quickest way to hedge against the rising inflationary pressure in the system today. So, this pullback or correction will create another entry opportunity for discerning market players, as the market interpret the outcome of yesterday TB auction to give further insights into the flow of funds in the financial market.
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Oil price oscillation continued, as it pulled back to trade $80.98 per barrel in the midst of Venezuelan output rise and crude oil inventory ballooning in US in the face rate pause by some of the central banks as inflation reports continue to cool off. The ongoing Middle East conflict and ceasefire continues to influence demand and supply meanwhile, worsened by the geopolitical tensions rising across the globe at a time the Russia-Ukraine war gradually approaches its third year. The war remains a major cause for concern with much more at stake than previously thought. The supply tightening due to the Russia-Ukraine war will propel the up and down movement in oil price, which also drive market volatility across the globe.
Meanwhile, midweek trading started slightly in the upside but oscillated to pullback for the rest of the session on profit taking in blue chip companies and others, which pushed the Index to an intraday low of 70,968.35bps from its highs of 71,089.79bps, before closing slightly below its opening level at 71,004.95bps.
Market technicals were positive and mixed with a lower volume traded, when compared to the previous session, in the midst of breadth favoring the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 30% buy position and 70% sell volume. The total transaction volume index stood at 1.09 points, just as the energy behind the day’s performance was strong, with Money Flow Index looking down to read 67.97pts, from the previous day’s 75.23pts, indicating that funds left the market.
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Index and Market Caps
At the close of trading, the composite NGXASI, shedva marginal 61.69bps, closing at 71,004.95bps, from the 71,066.55bps opening level, representing a 0.09% drop. Market capitalization fell by N34.461bn, closing at N39.05tr, from the previous day’s N39.08tr, which also represented a 0.09% depreciation in value.
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Midweek’s downturn was driven by profit taking in the shares of MTNN, Wapco, FBNH, Dangote Sugar, UBA, International Breweries, C/I Leasing and Livestock Feeds among others. This impacted mildly on Year-To-Date gain, which fell to 38.54%, while Market Capitalization YTD gain stood at N10.94tr, representing a 39.88% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as NGX Consumer and Industrial Goods index closed lower by 0.19% and 0.08% respectively, while NGX Insurance led the advancers after gaining 0.75%, followed by Banking with 0.19%. while NGX Oil/Gas closed flat.
Market breadth was positive as gainers outnumbered losers in the ratio of 33:15, while activities in volume and value terms were mixed, after players exchanged 428.44m shares worth N7.37bn, driven by trades in Verita Kapital, Unity Bank, GTCO, UBA and Jaiz Bank.
Unity Bank and RT Briscoe were the best performing stocks, gaining 10% each, closing at N1.54 and N0.66per share respectively, on market sentiment and forces. On the flip side, C/I Leasing and Prestige Assurance lost 7.56% and 7.55%, closing at N5.26 and N0.49 per share, purely on the back of selloffs and profit taking.

Market Outlook
We expect mixed sentiment to continue as investors target dividend paying stocks and technical divergence, in the midst of sector rotation on the strength of the better-than-expected corporate numbers released and high yields. As 2024 is setting up with dividend season ahead.
Meanwhile, all eyes are on the fiscal and monetary authorities to give direction of the government reforms and policies so far.

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