Expect Mixed Sentiment On Bargain Hunting, As Investors Crunch 2021, Q1 Financials

Market Update for March 7
Equity prices closed lower once more on the Nigerian Exchange Thursday as volatility continued in the midst of selloffs and positive market breadth extending the negative outing for thr second consecutive session, on a less than average traded volume. Market players continued to digest the 2021 corporate earnings performance ahead of the Q1 earnings expectations, while bargain hunters continue to cash on the recent pullbacks to position in undervalued stocks.

The heightened loss momentum recorded at the close of Thursday’s trading session was attributed to price adjustment of MTNN for its final dividend of N8.57 per share, and selloffs in blue chips that made the NGX index’s action to suffer this decline.

This is despite the improvement in position taking and market liquidity as revealed by the money flow index, especially as fixed income market yield curve continues to expand. This is just as global and domestic cost-pushed inflation crisis continues to threaten economies around the globe.

Analysts believe that the expected Q1 corporate scorecards will offer insights into what is to come for investors from the quoted companies in this pre-election year, especially given the level of uncertainties, so far.
The mixed outlook for the month of April remains, as filing of first-quarter earnings reports in the midst of corporate actions of qualification, price adjustments, AGM, and payment of dividends by listed companies.

However, there is need to watch the current trends, especially with bargain hunters still in the market cherry-picking fundamentally sound stocks. There is also the expected market reactions to the dividend announcements and numbers released in the hours leading to the end of March. These are likely to influence the market positively eventually.

Investors have continued to watch the nation’s economic developments and what is happening in the fixed income market, with yields and rates staying mixed and flattish.

Already, all eyes are on the plans by the Central Bank of Nigeria (CBN), as announced during the last Monetary Policy Committee (MPC) meeting to fulfill its promised intervention in the distribution of premium motor spirit and diesel. The aim is to ease the pains of the scarcity among manufacturers, SMEs, and households across the country, in the face of the epileptic power supply.

Despite the corporate actions induced decline, investors and traders should watch their stop-loss and profit targets to adjust positions at any given time.

Tentatively, the uptick in the fixed income market yields and oscillating rates of Treasury Bills may trigger the flow of funds into other assets. Also, there is the unstable movement of oil prices in the international market.
The ongoing war in Ukraine, and the mixed sentiments are having effect on the market in recent times, just as investors continue to keep their gaze on the 2023 general elections, amidst uncertainty and the heightening insecurity in the country, following attacks here and there, especially the recent attack on an Abuja-Kaduna train with over 930 persons onboard in Kaduna.

The pullbacks as seen in the NGX index’s action during the earnings reporting season have created ‘buy’ signals for smart and discerning traders. However, we warn that market corrections are not over yet, hence the need to rely on your stop-loss effectively. This is because the oscillating trend signals that a major uptrend is underway, especially when it gets to the level where it is considered good enough for fixed income market players, among others, to jump back into equity positions.

Thursday’s candlestick formation reveals that buyers are having the upper hand, a trend that may lead to a continuation or reversal, depending on market forces as all eyes are on companies’ Q1 results. As NGX index’s action trades below its 20-day moving average and slightly under 50DMA, as volatility and bearish sentiment persists, just as the downtrend towards the next support level is sported around 46,500.16bps. Should the index break this point, the next visible level is 46,412.72 points.

Technically, the NGX index is making higher lows, as the session witnessed mixed sentiment that could be linked to the repositioning of portfolios ahead of Q1 numbers and reaction to corporate action dates.

The possibility of the market sustaining this trend is a function of an inflow of impressive Q1 numbers and improved economic condition during this Q2, following which we advise investors to play defensive with sectors having strong demand and dividend stocks to reduce investment risks around the market.
Meanwhile, Thursday’s trading opened slightly on the upside but pulled back to oscillates on buying interests and profit taking that pushed the NGX’s index to an intraday low of 46,524.68 basis points from its highs of 46,806.53bps, before closing below its opening point at 46,543.51bps.

Market technicals were mixed and weak as volume traded was lower than the previous day, in the midst of breadth favouring bulls on selling sentiment as revealed by Investdata’s Sentiments Report showing 7% ‘buy’ volume and 93% ‘sell’ position. The total transaction volume index stood at 0.71 points, just as the impetus behind the day’s performance remained weak with Money Flow Index looking up at 33.40pts, from the previous day’s 30.23pts, indicating that funds entered the market, despite the down market.

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Index and Market Caps
At the end of Thursday’s trading, the composite index NGXASI shed 222.65bps to close at 46,543.51bps, after opening at 46,766.16bps, representing a 0.46% decline, just as market capitalization similarly lost N120bn, closing at N25.09tr, from the previous day’s N25.21tr, which also represented a 0.46% depreciation in value.

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The downturn was driven by selloffs and profit taking in UACN, Ecobank Transnational Incorporated, GSK, Dangote Sugar, Accesscorp, FCMB, Champion and Nascon, among others. This impacted negatively on Year-To-Date gain, which reduced to 8.96%, while market capitalization growth stood at N2.02tr YTD, representing a 12.84% rise over the opening level for the year.

Mixed Sector Indices
Performance indexes across sectors were mixed, as the NGX Energy closed 0.39% higher respectively, while NGX Consumer goods led the decliners after losing 0.19%, followed by Banking and Insurance with 0.12% and 0.08% respectively, while NGX Industrial goods was flat.

Market breadth turned positive, as gainers outnumbered losers in the ratio of 20:15; just as activities in volume and value terms were down, as investors exchanged 244.04m shares worth N2.35bn. Volume was driven by trades in Fidelity Bank, Transcorp, Zenith Bank, UBA and Accesscorp.

Conoil and RT Briscoe were the best-performing stocks of the session, gaining 9.89% and 9.80% respectively, to close at N24.45 and N0.56 per share respectively on N2.50 dividend and market forces. On the flip side, Veritaskap and UACN lost 8.70% and 7.49% respectively, closing at N0.21 and N10.50per share, on selloffs and profit taking.

Market Outlook
We expect a mixed sentiment on bargain hunting as players digest the 2021 audited financials to reposition for Q1 2022 earnings expectation.

This is expected to support an uptrend during this earnings season, amidst the oscillating oil prices, just as the market continues to interpret economic data in relationship with the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing.

This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements, as 2021 Q4 GDP up at 3.98%, while the International Monetary Fund is calling for a hike in the interest rate and further devaluation of the Naira.
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Ambrose Omordion
CRO|Investdata Consulting Ltd