Mixed Sentiments On NGX, As Investors Bet Policy Meeting Outcome, Earnings Inflow

Market Update for the Week Ended March 22 and Outlook for March 25-29

It was a mixed trading week on the Nigerian Exchange, halting two consecutive  weeks of bull-run, following profit booking in highly priced stocks and blue-chip, coupled with the absence of major corporate earnings in the face of mixed sentiments ahead of policy meeting of Nigeria’s central bank which opens on Monday. The MPC is expected to further hike rates in a bid to tame inflation which hit a 28-year high of  31.7% in February, while food inflation heightened to 38%, reflecting the high prices of  food items and services across the country.

Meanwhile, the earnings reporting season enters its official deadline for submission of full-year audited accounts for companies with December 31, 2023 year end, just as the recent report that the CBN had cleared foreign exchange backlog has seemingly supported the Naira as seen in the week under review.

Market players look to more inflow of earnings this last week of the quarter, and the same time expects end of Q1 window dressing by fund managers and others, especially as all eyes are on  banking stocks financial reports, knowing that the CBN has restricted Nigerian banks not to pay dividend or run their operation with the FX gain recorded in 2023. The CBN directed  banks to use the FX gains to enhance their buffer. Outside of the FX gain, the earnings power of banks are strong enough to support reasonable payouts that will then influence their share prices in the face of the expected recapitalization any moment from now. This sector remains the engine room of the nation’s economic growth and development and has been the most consistent in dividend payments. The numbers from  first-tier banks, especially, are expected to support the buying sentiment in the market, as the share prices of banks recently rebounded, thereby becoming attractive for dividend players and traders  ahead of their audited 2023 full year results.

Technically, the nation’s equity market remains at its overbought zone on a weekly chart, to exhibite some interesting behaviour that calls for cautious trading even as sentiment reports for the period reveals mixed sentiment, while MFI and RSI reads 83.30 and 77.63 points respectively looking mix, as index action trades above the T-line on a increasing  momentum. The bearish trend  and the positive breadth for the period were in the midst of buying interest and profit taking  as dividend income investors  and bargain hunters  took advantage of the pullbacks to position in dividend paying companies with high payout, growing earnings power,  low valuation and strong fundamental.  As the ongoing government reforms are yet to put the economy on the path of recovery, or progress due to a mismatch of policies, and even somersault altogether.

The global stock markets rebounded on US and UK rates pause and signal of possible rate cuts in the near future that supported the positive sentiment which pushed the MSCI world index to close higher with 2% gain for the week. Just as outcome of other central banks were mixed some left rate unchnage, while few cut and others marginal hike in the midst of positive corporate earnings. In the new week, the  expected PMI and CPI data will shape the market.

The changing market structure and  fundamentals, which  includes shareholding patterns, floats, personalities behind the quoted companies, liquidity, trend and  chart patterns.  These changes should wake up players and trade intelligently and smart to avoid being trapped in any position, by combining fundamental, technical, sentiment and commonsense analyses. This is no joke, it is exciting and scary time on the Exchange at the moment. Now is the time for action, if you must protect your investment, or capital by taking profit and targeting defensive stocks that are stable and established with strong/compact shareholding structures, relatively small outstanding shares, consistent in dividend payment and leaders in their sector or industry for strategic trading and investing.

To navigate the rest of Q1 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s Live Sessions at noon every Mondays, Wednesdays and Fridays, also get investdata Technical Toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent breakout of bullish channel to continue the markup phase. As volume of transaction witnessed within the week remain low traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.

Oil price was relatively flat forthe week, as it trade at $85.43per barrel following  expectation of central banks rates decision, as US and others left rate unchanged and attack on the Red sea, even as the many countries are calling for ceasefire in Middle East conflict. As lingering tensions in Ukurine and Russia disruption in oil output in the face of mixed demand outlook. The up and down movement of oil price has continues to drive volatility across different investment windows.

Movement Of NGXASI

The NGX had bearish week to short-live the previous two weeks of bull transition, as the composite NGX All-Share index recorded three down markets and two sessions of up market to finished in the red. Even as more companies notified the exchange of board meetings to approve their 2023 audited accounts, others released their Q2 earnings forecasts, while some informed the market of their delay in filing their results and insider dealing updates came from some like Transpower, Dangote Sugar, Cutix etc. The Initiates Plc and Deap Capital made available their full year earnings reports to the market and the numbers were mixed. As the Initiates Pls posted an impressive performance with 6 kobo dividend for its shareholders while Deap Capital numbers were disappointing as all its belated numbers from 2020, 2021, 2022, 2023 were in red, negative earnings reports.

The week’s trading opened on a negative note, halting previous gains with the index losing  0.40% on Monday, a trend that was sustained on Tuesday and midweek as the market was down with 0.11% and 0.28% respectively. The index rebounded on Thursday and Friday  with 0.13% and 0.25% gain respectively, on rekindled buying interest in financials services providers stocks and others. This brought the week’s accumulative loss to 0.42%, against the previous week’s 3.71% positive position.

Consequently, the key NGX All Share index shed 437.88bps, closing at 104,647.37bps, from previous week’s 105,085.25bps closing level, after  touching  an intraweek low of 103,888.54bps from a high  of 105,187.7bps. Market capitalisation also fell by  N247.6 billion to N59.2tr, representing a 0.42%  depreciation in value.

The top  advancers’ table for the period was dominated by medium  and low cap stocks in the midst of profit  taking and buying interest in stocks that had pulled back in recent time. Also notable was the fact that market players are still trading with caution, even when taking position and carrying out sector rotation  ahead of more earnings reports and unfolding events in the monetary space as all eyes are on Monday and Tuesday policy meeting of Central Bank of Nigeria.

Market technicals for the period were weak and  mixed as gainers outnumbered losers  in the ratio of 50:32 on a mixed sentimnts as revealed by investdata sentiment report showing  58% ‘buy’ volume and 42% sell position. Money Flow Index was flat at 83.30 points  from the previous week’s 83.08points, an indication that funds entered the market  slightly on a weekly time frame.

Technical View

The NGX index’s action had formed top chart pattern that signal a new downtrend, which needs to be confirm in this last trading week of the quarter, as window dressing is underway and more financials are expected in the market to change momentum. Despite, the mixed sentiment for the period, index  brokeout the strong resistance level of 105,085 to test 105,187.68bps to enter  a distribution phase on the weekly chart. We noted that the 106,000 mark as a strong resistance level on the daily and weekly time frame, even as the index on daily time from is ranging.  The market is at critical zone as all eyes are on the banks  financials to support market fundamentals and attract inflow again. Also, we note that investors are taking long-term positions in the face of dividend expectation and volatility.  Amid position taking by dividend investors now increasing their holdings  in the midst of uptrend.

We note also that buyers are in control, as revealed by the buying sentiment and positive market breadth, as the index is trading above the T line and 50-Day Moving Average on the weekly time frame.

Bullish Sectoral Indices

The sectoral indexes for the week were up, save for  NGX Consumer Goods that closed lower by 0.37%, while NGX Insurance  index  led the advancers  after gaining  8.92%, followed by Banking, Industrial Goods  and Energy with 4.19%, 0.57% and 0.30% respectively.

Activities in volume and value were down as players exchanged 1.74bn shares worth N48.76bn, compared to previous week’s 1.77bn units valued at N52.87bn. Volume was driven by Financial Services, Conglomerates  and Consumer goods industry,  boosted specifically by  UBA, FBNH, Accesscorp, Transcorp and Zenith Bank.

Juli  and NEM Insurance  were the best performing stocks for the week, after gaining 46.10% and  45.11% respectively, closing at N7.86 and N9.65 per share on market forces and  earnings expectation. On the flip side, Julius Berger and Daar comm lost 17.15% and 14.10% respectively, at N60.15 and N0.67per share, on profit taking and selloff.

Outlook for the week

We expect the mixed sentiment to continue on policy meeting outcome and the state of the more corporate earnings expected in the face of higher yields outlook in the fixed income market and rising inflation. Bargain hunters are also espected to take advantage of pullbacks to buy into dividend stocks. Investors are watching with rapt attention as the government takes steps to resolve the country’s lingering FX challenges which has thrown many companies into a negative earnings positions.

However, retracement to the 101,000bps level and below is possible on correction as global and domestic events unfold.

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