Mixed Sentiments Yet On Bargain Hunting Amidst Profit Taking, Reforms Concerns, Portfolio Repositioning

Market Update for July 19

Midweek’s trading on the Nigerian Exchange was mixed amid profit taking and positioning as market players continued to reposition their portfolios in view of the changing economic fundamentals and hope of more corporate earnings reports even while all eyes on high profile companies to release their half-year scorecards. Stakeholders are also betting on the possible outcome of next week’s meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee.
During the session, Multiverse Plc released an impressive half-year earnings reports which was impressive, considering the prevailing operating environment as top and bottom lines rose by 13% and 43% respectively. This translated to 19 kobo earnings per share, against the 13 kobo posted in 2022. We believe market players should be guided on the strength of these numbers.
The outcome of the forthcoming MPC meeting should give the nation’s financial market and economy a direction, with the possibility of continued rates cut or a pause, even as we note that monetary policy reforms and financial sector reset are ongoing aimed at achieving the 6% GDP growth target of the government, while attracting domestic and foreign investments. We note also that the CBN, last week, reviewed the Cash Reserve Ratio for Merchant Banks to 10%, from 32.5% so as to boost long-term financing in the system, a move that looks good. However, a continuation of policy mismatch may not help at this time as there should be rebalancing to drive the economy and come out of this stage for a clear direction.
Despite, the seeming profit taking and mixed sentiment at midweek trading, inflows of funds into the equity space remain high to signals that the bulls are underway, we need to confirm this when the market opens today, as the benchmark index’s was flat on mixed buying pattern and low traded volume. That is expected to support a continuation of trend, or pullback.
As all eyes are on more half year earnings release, value-oriented sector rotation and portfolio reshuffling continued against the backdrop of an environment where reform policies are driving hyperinflationary pressure in the face of an already heated economy and headwinds ranging from rising inflation, high interest rate regime and insecurity, among others.
The NGX slowed down to indicate a distribution phase on a mixed sentiment and buying interests, in the midst of profit taking in some banking, industrial goods and others stocks. Investors should know that profit taking is part of market dynamics. This is why despite the changing market structure as a result of gradual return of foreign portfolio investors and trading environment, we look forward to a mixed outing and intermittent profit taking, since factors that pushed the market to this level remain unchanged so far.
We also note that the earnings reporting season will reveal the state of corporate earnings power and others, which would expectedly be the game changer as we go into the quarter. Already, all eyes are on the expected appointment of economic managers and minsters by this new government, a situation that will determine their rating of the new administration.
The major sectors of the market witnessed a mixed performance on increased position taking and buying interests among low, medium and high cap stocks, especially in the telecoms, insurance, consumer goods, energy and others, while selloffs in Geregu power weighed down the index to close slightly lower. This was as more quoted companies notified the exchange and investors of insider dealings, their closed periods and board meeting dates to approve the half-year financials.
The NGX index’s action still trades above T-line, 50-Day Simple Moving Average and 100DMA on the daily and weekly chart in the midst of government economic and financial market reforms. This calls for a change in trading strategies and buying into value companies, amid the possibility of profit taking and correction any time. As such, technical traders and discerning investors must be guided, because higher prices will lead to lower dividend yields, even when market Price to Earnings Ratio is relatively low. It however provides better opportunities for investors to hedge against inflation even when fixed income market yields look attractive and remain mixed in the face of high inflation.
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Oil price oscillation continued, trading at $79.36.per barrel in the midst of fundamentals countering economic concerns and unclear rate direction of fed, as inflation rate gradually slowdown across many economies. 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.
Meanwhile, midweek’s trading started slightly in the green before pulling back to oscillate for the rest of the session on profit booking and buying interests in blue chip stocks that pushed the Index to an intraday low of 63,580.77ps, from its highs of 62,835.33ps, before closing slightly below it opening points at 63,757.23point.
Market technicals were mixed and weak with a lower volume traded when compared to the previous session in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata Sentiments Report showing 61% buy position and 0% sell volume. The total transaction volume index stood at 0.49 points, just as energy behind the day’s performance was strong, with Money Flow Index reads 79.65pts, from the previous day’s 79.92pts, indicating that funds were flat the market.
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Index and Market Caps
At the close of trading, the composite NGX All-Share Index slipped by 9.49 basis points, closing at 63,757.23bps, from its 63,766.72bps opening level, representing a 0.01% drop. Market capitalization also fell by N5.17bn to N34.72tr, from the previous day’s N34.72tr, which also represented a 0.02% value loss.
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The downturn was driven by selloffs and profit taking in shares of Geregu, UBA, Zenith Bank and Wapco among others. This impacted mildly on Year-To-Date growth, flat it to 24.4%, while Market Capitalization YTD gain increased to N6.93tr, representing 23.98% above its opening level for the year.

Bullish Sector Indices
Sectoral performance indexes were up, except for the NGX Banking and Industrial Goods closed 2.1% and 0.1% lower respectively, while the NGX Oil/Gas led the advancers after gaining 0.6%, followed by Insurance and Consumer goods with 0.5% each.
Market breadth turned negative as losers outnumbered gainers in the ratio of 27:24, while transactions in volume and value were down after investors exchanged 473.5m shares worth N10.1bn, driven by trades in Japaul Gold, FCMB, SteryingNG, Dangote Sugar and Fidelity Bank.
Honeywell Flour and Eterna were the best performing stocks, gaining 10% each, closing at N3.63 and N28.65 per share respectively, on positive market forces and sentiment. On the flip side, Prestige Assurance and Gerrgu lost 10% earch, closing at N0.45 and N315.00per share, purely on profit taking.

Market Outlook
We expect mixed sentiments to continue on bargain hunting in the midst of profit taking, economic concerns and portfolio repositioning amidst supportive reforms of the government, just as more policy pronouncements and appointments would offer investment direction. Also, as 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. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605