Expect Mixed Sentiments Ahead Of Release Of 1st-Tier Banks Earnings, Amidst July Inflation Data

Market Update for August 14

The Nigeria’s equity market started the week on a bearish sentiment, as the bears resurfaced wiping out the previous session’s gains on a less than average traded volume and mixed sentiments of profit taking and buying interest across the major sectors of the market. Also, all eyes are on the July Consumer Price Index due on Tuesday, to further guide the ongoing portfolio rebalancing ahead of first-tier banks half-year earnings reports, which should be net gainers from foreign exchange revaluation gains and corporate actions of PZ, Flourmill and Honeywell for their financial year ended May and March 2023 respectively.
The benchmark NGX All-Share index closed lower on negative breadth and selloffs in some blue chip companies and others that dragged the market down on cautious trading, while discerning investors are taking advantage of the market consolidation, after forming a descending triangle and flag that supports continuation of trend or reversal.
The distribution phase of the market in the midst of declining and low volume traded pattern of the market signals slowdown in profit taking and selloffs as more corporate earnings and other positive news are expected to hit the market, as volatility persists. These reflect the impact of ongoing government economic reforms, as well as the Central Bank of Nigeria’s exchange rate unification, and mixed performance over corporate earnings released so far among others.
At this point the market is looking forward to favorable and positive news now triggering yet another round of buying interest. Also noteworthy is the rates mixed outlook in the fixed income market, as portfolio repositioning and sector rotation continued on the strength of company earnings’ power.
There is the ongoing volatility as a result of the changing economic fundamentals, and government reforms that are driving the reset in financial market and trading environment. It should be taken against the backdrop of August being a very dicey month when eyes should be kept on the chart, trend, sentiment and volume at all time, using multiple time frame analysis to catch short, medium and long term buy breakouts or sell breakdowns. All these are already impacting prices of equities in the face of the recent rate hike that made fixed income instruments attractive for risk averse investors, just as institutional investors continue digesting these numbers in the midst of rising inflation and opportunities within the equity space to hedge against the surging inflation.
Also, the Price/Earnings ratios of the NGX and most individual companies reveal their relatively undervalued state and higher upside potentials to attract liquidity and positive sentiment. The economic managers are expected to give clear direction of government policies and implementation. This is why there is need for investors to navigate the market now that many equity prices look relatively cheap on the strength of some impressive earnings. The market cycle of top and bottom in the face of technical pattern of over bought and sold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.
The NGX index action pulled back to trade to 65,000 mark, ‘T line’ and 50-day moving average, attracting bargain hunters to position in fundamentally sound medium and low cap stocks amidst digesting of scorecards of many companies on the exchange. It is therefore time to use technical tools, if you have been ignoring charts and fighting the trends, it is your chance to step up your game.
At the current phase, the market offers bargain opportunities, following which market players should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway, depending on first tier banks interim dividend payout to give insight of what will be expected at their final in 2023 financial year. it is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. This is despite the changing market structure as a result of the gradual return of foreign portfolio investors, even as we look forward to a mixed outing and intermittent profit taking, since environmental factors that pushed the market to this level remain unchanged, as market wait for favorable news and statements from the minsters.
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Oil price oscillation continued, as it trades at $86.21 per barrel in the midst of expected higher shale output and gloomy china economic data. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, Monday’s trading opened slightly in green and oscillated throughout the session to pullback on continued profit taking in some major sectors. This situation pushed the Index to an intraday low of 65,036.37 basis points from its highs of 65,358.76 bps before closing below it opening figure at 65,036.37bps.
Market technicals were negative and mixed with a lower volume traded when compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 16% buy position and 84% sell volume. The total transaction volume index stood at 0.30 points, just as the energy behind the day’s performance was relatively weak, with Money Flow Index reading 46.72pts, from the previous day’s 53.33pts, indicating that funds left the market.
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Index and Market Caps
At the end of Monday’s trading, the key performance index NGXASI, shed 289bps, closing at 65,036.37bps, from its 65,325.37bps opening level, representing a 0.44% decline. Market capitalization also fell by N157bn to N35.42tr, from the previous day’s N35.57tr, which also represented a 0.44% deprecation in value.
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The down was driven by selloffs in the shares of Okomu Oil, Zenith Bank, Eterna, FBN Holdings, BUA Cement, Accesscorp and Cutix, among others. This impacted negatively on Year-To-Date growth, which reduced to 26.90%, while Market Capitalization YTD gain went up to N6.25tr, representing a 26.92% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Banking and Energy closed lower by 1.13% and 0.44% respectively, while the NGX Insurance led the advancers after gaining 0.80%, followed by Consumer and Industrial goods with 0.47% and 0.01% respectively.
Market breadth turned slightly negative as advancers outpaced decliners in the ratio of 23:22, while activities in volume and value were down after players exchanged 259.04m shares worth N4.20bn, driven by trades in Transcorp, Accesscorp, GTCO, SterlingNG and UBA.
Cornerstone Insurance and Omatek were the best performing stocks, gaining 9.3% and 8.82% respectively, closing at N1.29 and N0.37per share each, on market forces. On the flip side, Eterna and Sunu Assurance lost 9.9% and 9.6%, closing at N17.75 and N1.04per share, purely on the back of profit taking.

Market Outlook
We expect mixed sentiments on expected first tier banks earnings reports and bargain hunting, in the midst of July Inflation data due today, while investors digest corporate earnings ahead July inflation data and first-tier banks earnings reports. However, pullbacks are creating buying opportunities amidst economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction eventually.
Also, more Q2 earnings reports are expected to confirm the real state of the company performances and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605