Mixed Sentiments Yet, As Investors Digest Earnings Inflow, Target Value-Oriented Sectors

Mixed Sentiments Yet, As Investors Digest Earnings Inflow, Target Value-Oriented Sectors
Market Update for August 2

The selling pressure and profit taking on the Nigerian Exchange at the midweek seemed to be short-lived by bargain hunting activities and the proposed merger plan among sister companies- Dangote Sugar, Nascon Allied industries and Dangote Rice Limited, after market players had locked-in profit from a strong run between May and July. Also, investors and traders take advantage of the recent pullbacks and mixed corporate earnings performance as revealed by price actions and quarterly scorecards released to reposition and rebalance their portfolios. This is just as revaluation of assets and more pronouncements are expected from the government and economic managers who are expected to hit the ground running after confirmation the Ministerial by the Nigerian senate.
The NGX All-Share index closed slightly higher on a low traded volume and positive market breadth to resist further decline and thereby halting the five consecutive sessions of losses on a seemingly renewed buying interest to formed a hammer bullish candlestick that support a reversal pattern which need to be confirm as trading opens on Thursday. This is amid the changing economic fundamentals, with the ongoing government reforms that is driving the 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.
As we wait to confirm market reversal on market forces, looking at the trading patterns in blue-chip and low cap stocks that witnessed buying sentiment on the strength of value oriented sector rotation considering the mix earnings reports, there are some companies that posted surprising results, while others came 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 are still digesting these numbers in the midst of rising inflation and opportunity in equity space to hedge against inflation.
The mixed earnings performance of companies that comprise the NGX-30, which slowed down the market pushing it to the decline phase, offers investors and traders an insight into the general mood, just as Price/Earnings ratios of most companies on the exchange reveal their underpriced state, with higher upside potentials to attract liquidity and positive sentiment, if the economic managers give clear direction of their policies and implementation. Hence the need for investors to navigate the market now that many equity prices look cheap on the strength of some impressive earnings and relatively low prices.
The market cycle of a correction and market bottom in the face of technical pattern of oversold 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 64,000 mark, trading below the ‘T line’ and above 50-day moving average, to attract bargain hunters as sector rotation and portfolio rebalancing increased amidst the scorecards of many companies in the market. 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 market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway depending on the earnings power. At this time, 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 so far.
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Oil price oscillation continued, as it pulled back to trade at its four-month high of $83.26 per barrel in the midst of profit taking and downgrade of US credit, weather Saudi Arabia voluntary production cuts will continue or stop. 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.
Midweek’s trading started slightly in the downside and oscillated throughout the session to rebound on buying interest in blue chip companies and others that pushed the Index to an intraday high of 64,301.59 basis points, from its lows of 63,773.76bps, before closing marginally above it opening points at 64,267.36bps.
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 buying sentiment as revealed by Investdata Sentiments Report showing 94% buy position and 6% sell volume. The total transaction volume index stood at 0.35 points, just as the energy behind the day’s performance was relatively strong, with Money Flow Index reading 64.51pts, from the previous day’s 61.53pts, indicating that funds entered the market.
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Index and Market Caps
At the end of the trading session, the benchmark index NGXASI inched up by 75.16 basis points, closing at 64,267.36bps, from its 64,192.20bps opening level, representing a 0.12% up. Market capitalization also rose by N41bn to N34.97tr, from the previous day’s N34.931tr, which also represented a 0.12% value gain.

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Meanwhile, midweek’s upturn was driven by accumulation and buying interests in shares of Wapco, NB, Dangote Sugar, Nascon, Skyway Aviation, Wapic and Chi Plc, among others. This impacted mildly on Year-To-Date growth, which inched up to 25.40%, while Market Capitalization YTD gain slowed down to N5.85tr, representing a 25.37% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Banking closed lower by 0.35%, while the NGX Industrial goods led the advancers after gaining 0.22%, followed Consumer goods and Insurance with 0.16% and 0,04% respectively. Just as NGX Energy closed flat.
Market breadth turned positive, as gainers outnumbered losers in the ratio of 30:25, while transactions in volume and value were down after investors exchanged 330.78m shares worth N4.27bn, driven by trades in Transcorp, FBNH, ETI, Accesscorp and Chams.
Chams and Abbey Building were the best performing stocks, gaining 10% each, closing at N0.99 and N1.21 per share respectively, on market forces. On the flip side, Thomas Wax and University Press lost 10% and 9.78% respectively, closing at N1.17 and N2.49per share, purely on the back of selloffs and profit taking

Market Outlook
We expect mixed sentiments to continue on value oriented sector rotation, as investors and traders digest corporate earnings, even as bargain hunters take advantage of the pullbacks to rebalance their portfolios amidst supportive 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