July Begins Negative, Amidst Profit-Taking, NGX Becomes More Attractive

Market Update for July 1

The mixed sentiments and portfolio realignments ahead of the coming earnings reporting season continued on the Nigerian Exchange Thursday, ushering in the second half of the year on a marginal decline, thereby halting two successive sessions of bull transition on a low traded volume and positive breath.

Trading for the month of July therefore started on a flat note, being a very dicey month on the exchange with mixed trend and sentiment over the years.

Historic data reveals that in the past seven years the month has been down in five and up in just two- 2018 and 2020, despite being a Q2 earnings season month. With the changing market dynamics and trading environment we look forward to a mixed month, as factors that kept the market on its oscillating trend remain unchanged, amidst expectation of the state of corporate earnings and others to be a game changers as we go into the new month.

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Technically, the NGX index action is on an impulsive wave on a daily time frame after forming a double bottom and zigzag chart pattern that supports an uptrend, but requires volume and other information to sustain the trend ahead of financial news. Daily candlestick formation as we go into the month will give direction as to what we should expect in Q3 and more insights into the entire second half. Market recovery at this point may be powerful depending on the state of the expected numbers, although with the possibility of maintaining what we saw in 2020 and the Q1 corporate earnings. 

March year-end accounts already released look impressive, especially numbers from Flour Mills Nigeria, Honeywell, NNFM and Learn Africa, all of which grew their dividend payout for the year, unlike Redstar Express and University Press that posted weak numbers and cut their dividend.

Meanwhile, Thursday’s trading started slightly on the downside and oscillated for the rest of the session on profit taking and positioning among blue-chip stocks and low priced equities that push the NGX index to an intraday low of 37,892.20 basis points from its highs of 37, 911.82ps. 

The day’s market technicals were weak and mixed, with volume traded lower than previous day, in the midst of breadth favoring the bulls on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 32% ‘buy’ position and 68% sell volume. Total transaction volume index stood at 0.98 points, just as impetus behind the day’s performance was relatively weak, as seen in the 31.25pts Money Flow Index, compared to previous day’s 30.33pts, indicating that some funds entered the market despite closing down.

Index and Market Caps

The composite index, at the end of Thursday trading, slide marginally by 8.72bps, closing at 37,898.59bps, from an opening level of 37,907.28bps, representing a 0.02% drop, just as market capitalization fell by N4.6bn, closing at N19.76tr, from its opening value of N19.76tr, representing a 0.02% value loss.

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Thursday’s downturn was driven by profit taking in stocks like Flour Mills, GT HoldCo, Dangote Sugar, UBA, Cadbury, WAPIC, Royal Exchange, United Capital and Livestock Feeds, among others. This mildly impacted on Year-To-Date loss, cutting it to 5.89%, while the drop in market capitalization YTD stood at N1.13tr, representing a 6.03% drop from its opening value for the year.

Bullish Sector Indices

Performance indexes across sectors were up, except for the NGX Oil/Gas that closed 1.30% lower, while the NGX Insurance and Banking led the advancers after gaining 0.43% each, followed by Consumer Goods with 0.02% higher.

Market breadth remained positive as gainers outnumbered losers in the ratio of 20:15, while transactions in volume and value terms were down after investors exchanged   205.5m shares worth N2.73bn. This volume was driven by trades in GTCO, Mutual Benefits Assurance, Wema Bank, Courtville Business Solution and Zenith Bank.

Tripple Gee and Ikeja Hotel were the best performing stocks after gaining 10% and 9.77%, closing at N0.77 and N1.46 per share respectively on market forces.  On the flipside, Royal Exchange and Oando lost 9.84% and 8.51% respectively, closing at N0.55 and N3.01 per share, on profit taking.

Market Outlook

We expect sustained trend being the beginning of earnings season month after forming a chart pattern that support an uptrend as bargain hunters take advantage of pullbacks to reposition ahead of half year earnings reporting season. It is noteworthy that oil price continues its recovery at the international market with full-year and interim dividend possibilities around the corner. 

We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $73pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery that will enhance the market and give direction.

The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer negative real rate of return due to the galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in July.


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CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605

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