Mixed Outlook Still, As Investors Realign Portfolios Ahead Of 2021Q1 Earnings

Market Update for March 30

The up and down movement on the Nigerian Stock Exchange continued as selloffs and profit booking hit the high cap stocks on the recent rally at the peak of earnings reporting season with more companies making available their numbers to market. This is just as the numbers released and dividend news remain mixed reflecting the strength of company financials and economic situation during the year 2020. 

This prevailing movement after correction is normal; especially as full-year earnings season is gradually winding down to usher in the 2021 Q1 reporting season, amid the month and quarter-end window dressing. The improving momentum, despite the mixed trend indicates that funds are   entering the market as revealed by money flow index, due to dividend payout that continues to attract demand for blue-chip stocks in hot sectors with strong potential to grow sales in the current financial year as events in the economy unfold.

The NSE’s index action has formed a minor double top chart pattern after it rebounded recently. This pattern supports pullback as witnessed on Tuesday, halting the previous session’s positive sentiment and bull transition, although the index remains above the shortest moving averages of 7, 14 and 20-day on a low traded volume. This signals reversal of pattern and trend, but needs to be confirmed in the next trading session.

Tuesday’s trading started on the downside and was sustained for the rest of the session, despite oscillating on buying interests in blue-chips and selling in highly capitalized companies that pushed the key performance index. The index touched an intraday low of 39,247.36 basis points from its highs of 39,573.26bps before closing below its opening point at 39,267.11bps.

Market technicals for the day were weak and mixed, with volume traded lower than previous day’s in the midst of breadth favouring the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 94% ‘sell’ volume and 6% buy position. Total transaction volume index stood at 0.89 points, just as energy behind the day’s performance became relatively strong. Money Flow Index improved marginally to 67.57pts, from the previous day’s 67.27pts, indicating that funds entered the market, despite the down market.

Index and Market Caps

The benchmark NSE All-Share index (ASI) at the end of the day’s trading shed 226.26ps, closing at 39,267.11bps after opening at 39,493.39bps, representing a 0.57% decline. Similarly, market capitalization fell by N118.38bn, closing at N20.54tr, from previous day’s N20.66tr, which also represented 0.57% depreciation in value.

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Tuesday’s downturn resulted from selloffs and profit taking in stocks like Dangote Cement, AIICO, Julius Berger, and Ecobank Transnational Incorporation, among others, which impacted negatively on Year-To-Date loss, which rose to 2.49%, just as market capitalization loss dropped to N512bn, or 2.44% below its opening value for the year.

Mixed Sector Indices

The sectorial performance indexes were mixed, as the NSE Banking, and Consumer Goods closed 0.94% and 0.07% higher respectively, while the NSE Industrial goods led the decliners, shedding 1.90%.

Market breadth remained positive, as advancers outnumbered decliners in the ratio of 22:13; just as transactions in volume and value were down after investors traded 336.13m units worth N3.21bn.

Livestock Feeds and Cornerstone Insurance were the best performing stocks on Tuesday, after gaining 9.66% and 9.09%, closing at N1.93 and N0.60 per share respectively on the impressive earnings and market forces. On the flip side, Regency Insurance and Prestige Assurance lost 9.09% and 8.89% respectively, closing at N0.30 and N0.41 per share, on profit taking and market forces.

Market Outlook

We expect the mixed trend to continue as more corporate earnings hit the market in the face of rising dividend and quarter end window dressing by fund managers, as well as portfolio reshuffling ahead of Q1 earnings reporting season in April. Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition in high dividend yields and undervalued stocks, while more companies release their full-year and quarterly 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 2020 full numbers and expected 2021 Q1 earnings reports, until the next MPC meeting in May.

The NSE’s index action and indicators are heading in the same direction   on a low traded volume and positive buying sentiments in the midst of rising yield in bond and TB.

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