Mixed Outlook, Profit Booking, Ahead Of More Earnings, Dividend

Market Update for the Week Ended March 26 and Outlook for March 29-April 1

It was another volatile and mixed week on the Nigerian Stock Exchange as the composite All-Share index closed higher, halting seven successive weeks of decline on improved buying interests, low traded volume and wide positive market breadth. This indicates the return of some strength capable of supporting an uptrend at the peak of earnings season, added to the rain of dividend news and payout from blue chip companies, as the market entered the final week for the submission of those audited accounts with December year-end,

Consequently, more companies are expected to release their numbers, going by the number of board meeting held to approve their financial statements and propose a dividend, as announced to the exchange. This is a pointer to the fact that there will be influx of corporate earnings ahead of month-end and first quarter-end window dressing by fund managers and other players.

With the market turning up technically as revealed by indicators and candlesticks, in the aftermath of last week’s CBN Monetary Policy Committee meeting, traders should take advantage of the mixed trend and profit taking to position for the Q1 2021 earnings reports in the new month.

That notwithstanding, it is not out of place to expect profit-booking from the few days’ rally, as it presents huge buying opportunities for discerning investors to grow their wealth, given the seeming early expansion, that would follow from the economy exiting recession. This is visible also in the recovery in productivity as confirmed by the improvement in the Purchasing Managers’ index at 52.7 points for February, up from 50.7 points in January. The market is looking forward to the PMI for March reports from CBN. This gradual improvement, Investdata believes, will be sustained in the face of the galloping inflation and lack of coordinated economic policies needed to support sustained recovery, especially the recurrent hike in the prices of petroleum products and Naira devaluation.

Nonetheless, the current happenings in the environment offer big opportunities as some sectors and companies continue to benefit from the COVID vaccination now driving global and domestic recovery, which will in turn support oil price despite the ongoing oscillation.

At this time, market players must, therefore, target the right sectors and stocks for capital gains and higher yields to stay ahead of inflation in the short-term. This kind of opportunity is what makes the equity market the best investment hedge against inflation, regardless of the rising yields in the fixed income market.

The key performance index of the NSE is currently trading above the 39,000 basis points and 20-Day Moving Average on a weekly chart, especially as the index action is set to breakout the 39,412.42 points and 39,985.25 levels. This is a sign of volatility towards recovery move of the market, and should the index breakout this 39,412.42bps mark, we reiterate the point that the next visible resistance is just slightly ahead of 39,985.25bps. This will be buoyed by positive sentiments and news of dividends that beat market expectations, or favorable fiscal policies capable of enhancing liquidity and sentiments. 

Movement Of NSEASI

Trading activities for the week were mixed as the NSE Index recorded three up markets and two down sessions, as rekindled buying interests in bellwether stocks boosted transaction for the period under review. 

The week’s trading activities opened on a positive note, after gaining 0.89% on demand for high cap stocks, but turned marginally negative on Tuesday losing 0.05% as investors traded cautiously, while awaiting the outcome of the MPC meeting. The MPC’s decision to leave all rates unchanged removed the air of uncertainty around the market, a situation that reflected on the indices of midweek, the next trading day, when the benchmark index jumped 0.98% up. This trend was sustained on Thursday when the market gained 0.53% on positive sentiments for blue-chips, supported by the impressive payout from Stanbic IBTC and others, a situation that was short-lived on Friday when players took profit, bringing the week total gain to 2.17% an improvement over previous week’s 0.69% loss.

Consequently, the All-Share index gained 833.81 basis points during the week, from its opening level of 38,382.39bps, touching an intra-week high of 39,293.14bps, when compared to the lows of 38,379.19bps. Also, market capitalization rose by N436.25bn to N20.52tr from the previous week’s N20.08tr. This was due to the improved sentiment and outpouring of earnings reports.

The advancers’ table for the period was dominated by medium and low priced stocks, as investors positioned in dividend paying stocks, with the trading and price pattern revealing accumulation in some stocks in the midst of mixed trend, despite the adjustments in the share prices of UBA and Ardrova for the dividend of 35 kobo and 19 kobo respectively proposed by their directors.

During the week, advancers outnumbered decliners in the ratio of 48:18 on a buying pressure   and strong momentum, even while Money Flow Index was flat, reading 53.54bps, down from 53.54 points in the previous week. During the period also, Stanbic IBTC, Lafarge Africa, Ecobank Transnational Inc., Dangote Cement and International Breweries submitted their full-year earnings reports, with their directors offering dividend.

NSEASI WEEKLY CHART MOVEMENT

The NSE index’s action halted the negative trend, turning positive in the midst of changing price patterns and trading environment, as dividend investors accumulate positions in dividend paying and growth stocks, ahead of deadline and quarter end.

Also, the index reversed up to trade above the 20-Day Moving Average, breaking out the 39,000bps-mark’s strong resistance level on low traded volume and positive sentiments. This is likely to continue as more players’ position for Q1 earnings expectations.

Nevertheless, it is expected that the market will maintain its recovery mode, especially as more listed companies release their numbers to the market alongside other economic data.

The strong resistance level to watch out for on the NSE is within the 39.985.25bps and 40,000bps, and a breakout of these levels will attract new positioning by traders. Fortunately, this is coming at a time crude oil is oscillating at the international market at the national budget benchmark oil of $45, while the distribution of vaccines is ongoing among the various state governments.

However, we envisage a a, especially after the market recorded an uptrend last year.

Our mixed outlook is hinged on factors like the possible impact of corporate earnings, mismatch of monetary and fiscal policies, in addition to the 2021 capital budget, implications of oil prices oscillating around $60 and $70 per barrel on the nation’s revenue, just as Money Flow Index  remain relatively strong and MACD are bearish on a weekly chart.

BullishSectoral Indices

Performance indexes across the sectors were up, with NSE Industrial goods leading  the advancers  after gaining  2.94%, followed by Consumer Goods, Insurance, Energy  and Banking that closed 1.41%, 0.94%, 0.69% and 0.21% higher.

The general market’s outlook remains mixed in the short-term; following which investors should take short and medium-term positions, while diversifying their portfolios along long-term trades to protect capital. This, they can do, by considering sectors with high upside potentials on the strength of earnings and policy influence.

The recent market pullbacks call for portfolio adjustments and realignments, as unaudited and audited numbers from some companies and sectors will expectedly come mixed, given the negative impact of the COVID-19 pandemic and the arson that followed the #EndSARS protests on full-year results, as revealed by the macroeconomic indices.

Activity in volume and value terms were mixed as volume fell by34.62% to 1.53 billion shares, from the previous 2.34 billion units, while transaction value grew by 10.59% to N21.31 billion, from N19.27 billion. Volume was driven by trades in FinancialServices, Consumer goods and Conglomerates sectors, particularly Union Bank of Nigeria, Guaranty Trust Bank, Dangote Sugar, Transcorp and Zenith Bank.

Stanbic IBTC and Julius Berger were the best performing stocks for the week, gaining 30% and 20.88% respectively, closing at N52.00 and N20.55 each on N3.60/Bonus 1:6 and earnings expectations, while Livestock Feed  and Champion Breweries   lost 15.46% and 13.11% respectively, at N1.75and N2.12 per share on profit taking.

Market Outlook

We expect the mixed trend to continue as more corporate earnings hit the market in the face of rising fixed income market yields and quarter end window dressing ahead of Q1 earnings season. Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition in value and underpriced growth stocks, while more companies release their full-year numbers to support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.

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. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, until the next MPC meeting in March.

The NSE’s index action and indicators are in divergence on a low traded volume and positive buying sentiments.

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