Expect Mixed Trend On Profit Taking, Ahead Of Markdown Dates, Inflation Data, MPC Outcome
Market Update for May 11
The pullback on the Nigerian Exchange continued on Thursday, as the benchmark NGX All-Share index resisted further decline, closing marginally lower on a low traded volume and positive market breadth. Thereby extending the bear-run on profit taking for two consecutive sessions in the midst of market players realigning their portfolios on the strength of fundamentals and impressive first quarter earnings reports. Just as dividend payments provide more money for investors to reposition in value stocks, as rates and yields in the fixed income space continue to oscillate, especially at the National Treasury Bills Primary Market Auction where all tenors’ rates suffered declines, closing at 4.5%, 6.44% and 8.99% for the 91, 182 and 364-day tenors.
The recent low 25 basis points rate hike in the western economies by their central banks, as the inflation rates in these domain continued to slow down after long periods of policy tightening has impacted negatively on their economies and banking industry. This may start to give way for rate normalization and cut in the nearest future.
Back home, all eyes are on the April inflation data, and the outcome of this month’s Monetary Policy Committee meeting with less than 18 days to the inauguration of the new administration which is believed to be pro-market and economy, while driving development to enhance the living standard of Nigerians. These factors are likely to impact the market and drive positive sentiment on the back of policy statements and appointment of economic managers to support the renewed hope.
Profit booking in some highly priced stocks and blue chip companies weighed down the market in the face of mixed session and sentiments. Candlestick formation at the end Thursday trading signal no supply bar and bottom reversal pattern that need to be confirm today as the market opens. As the market expected more audited accounts of March year-end companies, after Airtel Africa made available its full year audited report for the period ended March 31, 2023, which performance was mixed, as top line went up by 12% while profitability slide down by 1%, with final dividend of 3.27c per share, making it a total of 5.45c for the financial year 2023.
Meanwhile, the current distribution phase of the market calls for caution while at the same time looking at fundamentally sound stocks and the future growth prospects, considering the various sectors and current prices. The prevailing low prices of many stocks due to their recent adjustments for dividend that has made them attractive for new entry and repositioning of portfolios in the midst of high inflation and improving economic activities despite the high cost of funds.
The mixed sentiments on the exchange was driven by buy and sell interests in blue chip companies, especially banking stocks and others, even as the 20-Day Simple Moving Average remains a strong support level on the daily chart. This should guide technical traders and discerning investors, based on the dividend yields and low market Price to Earnings Ratio that provides better opportunity for investors to hedge against inflation even when fixed income market yields look attractive and remain mixed.
Also, there is the uncertainty of a rate crash as the incoming government moves to drive economic growth and development, even as we note the suspension of the planned removal of fuel subsidy and postponement of the population census, signaling the possibility of a policy shift. These may be a plus for the equity market on a likely financial market and economic reset. Market volatility remains at the extreme on positive sentiment as T-line turned support for index action ahead of the next market forces and positive statement.
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Oil price oscillation continued as it pulled back again to trade at $74.68 per barrel in the midst weak demand and low quality crude. Just as China economic recovery remain weak in the face of central banks rates hike is driving economic contraction in the face Ukraine attack. This is in addition to rising geopolitical tension across the globe, the prevailing high interest rate regime and soaring inflation, despite slowing down across the globe remain potent threat to world economy. Also, supply tightened due to the Russia-Ukraine war that entered the second year.
The up and down movement of oil price also continues to drive volatility across markets.
Thursday’s trading opened slightly on the downside, and was sustained despite oscillating for the rest of the session, pulling back on profit taking in large cap stocks, amid buying interests in energy and insurance stocks, a situation that pushed the NGXASI to an intraday low of 52,100.03 basis points from its highs of 52,251.68ps, before closing slightly below its opening level at 52,161.24bps.
Market technicals were positive and mixed with lower volume traded when compared to the previous session in the midst of breadth favoring the bulls on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 40% buy position and 60% sell volume. The total transaction volume index stood at 0.83 points, just as impetus behind the day’s performance was strong as Money Flow Index reads 79.10pts, from the previous day’s 75.14pts, indicating that funds entered the market, despite closing flat.
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Index and Market Caps
The NGXASI closed 47.82 basis points lower at 52,161.24bps on Thursday, from its 52,209.06bps opening level, representing a 0.09% drop, just as market capitalization fell by N26bn to N28.40tr, from the previous day’s N28.43tr, which also represented a 0.09% value loss.
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The downturn was driven by profit taking in Accesscorp, Zenith Bank, GTCO, SterlingNG, Royal Exchange, FCMB and Academy Press among others, which impacted negatively on Year-To-Date gain as it reduced to 1.78%. Market capitalization YTD gain dropped to N131.17bn, representing 1.74% above its opening level for the year.
Mixed Sector Indices
Sectoral performance indexes were mixed with the NGX Energy and Insurance closing 1.34% and 0.19% higher respectively, while the NGX Banking led the decliners with a 1.35% loss, followed by Consumer goods and Industrial goods with 0.10% and 0.01% respectively.
Market breadth was nonetheless positive as gainers outpaced losers in the ratio of 22:20, while transactions in volume and value were down after investors exchanged 477.37m shares worth N5.24bn, driven by trades in Accesscorp, UBA, Fidelity Bank, GTCO and Zenith Bank.
Ardova and NCR were the best performing stocks, gaining 10% and 9.87% respectively, to close at N24.20 and N2.56 per share, on market forces. On the flip side, FCMB and SterlingNG lost 5.66% and 3.53% respectively, closing at N4.00 and N1.64per share, purely on selloffs and profit taking.
We expect mixed sentiments to continue on profit taking and payments for dividend to support buying interest, just as investors react to corporate earnings ahead of markdown dates, April inflation report, MPC meeting and dividend payments.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios post-dividend adjustments. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit. Also looking at the trends and events across the globe and domestically.
CRO|Investdata Consulting Ltd
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