Expect Mixed Sentiment On Profit Taking Amid Earnings Inflow, As Investors Eye Dividend Stocks

Market Update for the Week Ended February  2 and Outlook for Feb 5 – 9

The bull-run on the Nigerian Exchange continued for the fifth successive week on a mixed trend of buying sentiments in the midst of profit taking, while Fund Managers realigned their portfolios in line with regulatory requirements. As these were ongoing, the market witnessed an influx of unaudited quarterly and full-year earnings reports as company boards fell over themselves to meet the statutory 30-day deadline that ended January 31, 2024 to file their Q4 results. Having met this deadline, they now have March 31, 2024 to publish their audited 2023 financials. We note that the numbers released so far  have given market players an insight into what to expect from the various companies when the results are finally audited and presented to investors.

Meanwhile, the market  entered the peak  of the earnings reporting season that comes with dividend announcement and corporate actions for companies that opted to release  their audited scorecards before the end of February. Consequently, all eyes are on such early filers like  United Capital, Africa Prudental, Zenith Bank, Nigerian Breweries, MTN Nigeria, GTCO, Infinity Trust Mortgage Bank, and Dangote Cement, among others.

The mix state of the corporate earnings pouring into the exchange reflects the increasing macroeconomic headwinds in the country, even as the nation’s stock market remains disconnected from economic realities. There is however high hopes that the fiscal and monetary authorities would give a clear direction sooner than later through their cocktail of remedies by way of reforms and policies.

The lingering foreign exchange market challenges and worsening insecurity across the country continue to fuel the hyper-inflationary environment which is negatively impacting asset prices and threatening returns on fixed income instruments. This is however creating wealth for discerning investors and smart traders on the equity side of the financial markets.

The global markets recorded a mixed performance to sustain its positive momentum, as central banks across the world are opting to leave rates unchanged in their first policy meeting of 2024. The positive corporate earnings and buying interest in tech stocks are offering the needed support to these market, despite the mixed macroeconomic reports from different domains. Market players are still looking forward to  more economic data next week to guide investment decisions.

Traders and investors  hedged against a potential downturn, corrections and pullbacks by not being fooled by the recent rebound on the NGX as prices are still at overbought region. The pullback on profit taking is creating a buy opportunities, despite the fact that the composite All-Share index crossed the 104,000 basis points psychological line again, after making another historic milestone at 105,005.82bps.

Investors should, therefore, wake up and trade intelligently and smart to avoid being trapped in any position. While this is no joke, it is exciting and scary time on the Exchange at the moment. Now is the time for action, if you must protect your investment, or capital by taking profit and targeting defensive stocks that are stable and established with strong/compact shareholding structures, relatively small outstanding shares, consistent in dividend payment and leaders in their sector or industry.

To navigate the rest of Q1 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s Live Sessions at noon every Mondays, Wednesdays and Fridays, also get investdata Technical Toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent breakout of bullish channel to continue the markup phase. As volume of transaction witnessed within the week remain high traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.

Oil price during the week under review  pulled back for a weekly loss, trading at $77.33 per barrel following China’s weak economic growth as revealed by the recent Purchasing Manager Index that remained below the 50 points threshold. This is an indication of a slowdown in business activities, as major central banks of the world left rates unchanged in the first policy meeting of 2024 amidst the lingering tensions in the Middle East and disruption in oil output. The  mixed global macroeconomic data as inflation resurfaced put pressure on oil prices. As oil demand outlook remains mixed in the midst of uncertainty around rate cut. Just as Russia-Ukraine war has lingered over two year now, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI

The NGX recorded a mixed trend of three trading sessions of up market, and two days of down markets with the week closing higher, thereby extending the positive outing for five straight weeks on buying interests in highly priced stocks and renewed position taking, especial in banking stocks, among others, after pullbacks resulting from profit-taking in the midst of earnings reporting season and volatility.  Despite the declining rate of gains on the exchange, traded volume was very high, but market breadth was negative in the face of  buying sentiments and portfolio repositioning, as bargain hunters continued to take advantage of price corrections.

Trading for the period, started on a positive note, with the NGXASI gaining 2.22% on Monday, before pulling back on Tuesday and midweek by 1.495% and 1.89% respectively on profit booking. This trend was short-lived  on Thursday when the index rebounded, gaining 1.63% on rekindled buying interest in banking and insurance stocks. This was sustained on Friday when the market closed 1.57% higher, bringing the week’s cumulative gain to 1.97%, compared to the previous week’s 8.32% positive position.

Consequently, the benchmark NGX All Share Index soared by 2,019.35bps closing at 104,421.23bps, compared to the week’s 102,401.88bps opening level, after breaking through 103,000 and 104,000 psychological lines to intra-week highs of 105,005.83bps and a low of  100,573.42bps. Market capitalisation also rose by N1.12tr to N57.16tr representing a 2% value gain.

The week’s top gainers were mainly low and large cap stocks in the midst of buying sentiment in dividend paying stocks and profit taking  among others. Also notable was the fact that traders took advantage of the up market to cash out profit and reposition in stocks with high upside potential ahead of their earnings reports, despite some stocks are hitting new highs.

Market technicals  for the period was mixed and weak as losers outnumbered gainers in the ratio of 64:27 on buying sentiment as revealed by investdata sentiment report showing 87% ‘buy’ volume and 13% sell position. Money Flow Index was looking flat at the highest level to show entrance of money into equity at 100bps from the previous week’s 100 points, an indication that funds hit the market on a weekly time frame.

Technical View

The NGX’s bull-run continued on a reduce magnitude with a top reversal chart pattern after testing 105,005.83points  to close the period at  104,421.23bps on a very high traded volume that revealed dividend income players taking  long-term position in the face of high volatility and profit taking. Also, there was position taking by investors increasing their holdings, while the market continues to trade above the T-line on a daily, weekly and monthly time frame. In the process it sustained its uptrend in the midst of a bearish divergence between money flow and  index action at overbought state of NGX. We note also that sellers are in control, notwithstanding the fact that the market closed in green, even as the index is trading above the 200-Day Moving Average on the weekly time frame.

Mixed Sectoral Indices

Sectorial indexes performance were mixed with the NGX Industrial and Consumer Goods indexes closing 6.36% and 1.30% higher respectively, while NGX Banking  led the decliners after losing 4.52%, followed by Insurance  and Energy with  4.07% and 2.47% respectively.

Transactions  in volume and value were up, as players exchanged 3.89bn shares worth N95.15bn, compared to the previous week’s 2.98bn units valued at N57.87bn. Volume was driven by Financial Services, Oil/Gas and Conglomerates Industry. This \ was boosted specifically by trading in  FBN Holdings, Transcorp,UBA, Accesscorp and Japaul Gold.

Tripple Gee and Meyer Plc were the  best performing stocks for the week, after gaining 42.05% and 20.79% respectively, and closing at N4.02 and N4.30per share on market sentiments and forces. On the flip side, Daar Comm  and Eterna lost 22.22%and 19.49% respectively, at N0.70 and N22.10 per share, purely on selloffs and profit taking.

Outlook for the week

We expect mixed sentiment on profit taking and reactions to more earnings inflow as market players target fundamentally sound stocks ahead of the dividend season. There is also much awaited Monetary Policy Committee meeting holding later this month after six months of postponement in the face of a free fall in the value of the Naira which has made Nigerian stocks cheaper amidst the rising inflation. Also, the market awaits the steps government would take to resolve the country’s lingering FX challenges.

However, retracement to the 94,559.46bps level and below is possible on profit taking as global and domestic events unfold.

Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605