Mixed Sentiments On Bargain Hunting, As Investors Digest Earnings Ahead July Inflation Data

Market Update for August 8

The seesaw movement continued on the Nigerian Exchange Tuesday in the face of mixed sentiments of buying interest and selloffs in some blue chip companies and highly priced stocks that halted the previous session’s gains on a less than average traded volume and positive market breadth to formed a top chart pattern that signaled correction or continuation of trend which requires confirmation as prevailing low volume of transaction revealed weak demand for stocks and lack of positive news to drive demand at this point.
The proposed merger of Dangote Sugar, Nascon and Dangote Rice Ltd, coupled with the planed exit of Gsk are not clear to the investing public, as details of these corporate moves are not available to guide market player’s decision, after the manufacturing sector, especially Consumer Goods suffered setback as a result of FX losses, Just as buying sentiment in banking stocks continued as investors await SterlingNG and Tier 1 banks half year earnings reports, as portfolio rebalancing and sector rotation continued on the strength of corporate earnings released recently.
Assets revaluation continues as investors await more pronouncements from the government and economic manager’s portfolios as the Senate concludes the confirmation of ministers that form the federal’s executive council to deliver dividend of democracy and put the Nigerian economy in the path of progress. Also, 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.
Looking at the trading volume patterns in blue-chip companies and low cap stocks that witnessed buying sentiment on the strength of value oriented sector rotation, and considering the mix earnings reports, where some companies that posted surprising results, while others came well below market expectations. 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 NGX and most of the individual companies Price/Earnings ratios 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 the 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 market remains above the 65,000 mark to trade slightly above the ‘T line’ and above the 50-day moving average, attracting bargain hunters as sector rotation and portfolio rebalancing increased 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 this current ranging market, investors and traders 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 remains resilient to trade at $85.96 per barrel in the midst of surprise crude build and weak demand for oil from the second largest economy. 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.
Tuesday’s trading started slightly in the green and oscillated throughout the session on buying interest and profit taking across different classes of stocks. This situation pushed the Index to an intraday low of 65,212.96 basis points, from its highs of 65,393.80bps, before closing marginally below the opening level at 65,309.65bps.
Market technicals were positive and mixed with a 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 53% buy position and 47% sell volume. The total transaction volume index stood at 0.34 points, just as the impetus behind the day’s performance was relatively strong, with Money Flow Index reading 66.75pts, from the previous day’s 67.33pts, indicating that funds left the market.
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Index and Market Caps
The benchmark NGXASI, at the end of Tuesday trading slide by 27.06 basis points, closing at 65,309.65bps, from its 65,336.80bps opening level, representing a 0.04% drop. Market capitalization also fell by N14.72bn to N35.54tr, from the previous day’s N35.56tr, which also represented a 0.04% value loss.
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Meanwhile, Tuesday’s downturn was driven by selloffs in shares of Geregu, Dangote Sugar, ETI, Eterna, Wapco and Aiico, among others. This impacted mildly on Year-To-Date growth, which reduced to 27.43%, while Market Capitalization YTD gain slowed down to N6.28tr, representing a 27.32% rise above its opening level for the year.

Bearish Sector Indices
Sectoral performance indexes were down, except for NGX Banking that closed higher by 0.61%, while the NGX Energy led the decliners after losing 0.25%, followed by Insurance, Consumer goods and Industrial goods with 0.18%, 0,05% and 0.05% respectively.
Market breadth was positive, as gainers outnumbered losers in the ratio of 28:24, while activities in volume and value were mixed after players had transacted 317.80m shares worth N4.47bn, driven by trades in Accesscorp, SterlingNG, Universal Insurance, FCMB and FBNH.
Guinness Nigeria and GSK were the best performing stocks, gaining 10% and 9.74%, respectively, to close at N60.50 and N10.70 per share respectively, on market forces. On the flip side, NSLTECH and NNFM lost 10% and 9.89% respectively, closing at N0.27 and N12.30per share, purely on the back of selloffs and profit taking

Market Outlook
We expect mixed sentiments on profit taking and bargain hunting, as market players await positive news and digest corporate earnings ahead July inflation data and first tier banks earnings reports even as pullbacks create buying opportunity 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.
Also, more Q2 earnings reports are expected to confirm the real state of the company performance 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