Mixed Sessions Still, Amidst Profit Taking, As Investors Position In Undervalued Stocks

Market Update for August 10

Monday’s trading on the Nigerian Stock Exchange (NSE) was another volatile and mixed session, with the benchmark All-Share Index turned red, thereby halting the previous sessions gain in the midst of earnings expectations from the nation’s first-tier banks, and profit booking from stocks that rallied recently.

The mixed sentiment failed to lift the market as selloffs kicked off among high cap stocks, despite the mixed earnings performance that had supported the market before now as sectoral rotation continued based on numbers so far released. The decline was also despite the prospects for future performance in this new normal, as new cases of the coronavirus infection keep rising and spreading like wildfire in an economy that is shaking due to unclear policies emanating from different agencies of the government.

It is obvious that buying pressure subsided during Monday’s trading session as noted in our previous reports, while positive sentiments were strongly induced by interim dividend expectations. Other factors include earnings surprises from some sectors and companies, coupled with the relatively stable price of crude oil in the midst of the pandemic and geopolitical concerns, among others.

Meanwhile, Monday’s trading started slightly on the downside, and oscillated throughout the day on  mixed sentiment of  buying interests in  insurance, consumer goods sectors, as profit taking gradually hit banking and high cap stocks. This pushed the NSE index to an intraday low of 24,841.94basis points, from its high of 25,041.89bps, before retracing up slightly to close lower at 25,027.61bps.

Market technicals were weak and mixed with volume traded slightly higher than that of the previous sessions with breadth favouring the bulls on strong buying pressure as revealed by Investdata’s Sentiment Report showing 93% ‘buy’ volume and 7% ‘sell’ position. The total transaction volume index stood at 0.95 points, just as the momentum behind the day’s performance remains strong as Money Flow Index reads 69.33points, from the previous day’s 67.81points. This is an indication that funds entered some stocks despite the slight down market, even as liquidity improved.

Index and Market Caps

The composite NSEASI, at the close of Monday day’s trading, shed a marginal 14.28bps, closing at 25,027.61bps, from the 25,041.89bps it opened which represented a 0.06% drop, just as market capitalization lost N7.45bn, closing at N13.1tr, which also represented 0.06% value loss.

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Monday’s downturn was impacted by value depreciation in medium and high cap stocks like BUA Cement, Zenith Bank, UBA, ETI, UACN ChampionBrewery and Honeywell Flour. This, expectedly, impacted mildly on the NSE, as Year-To-Date loss increased to 6.76%, while market capitalization YTD positive position stood at N97.5bn, representing 0.75% above  the year’s opening value.

Mixed Sector Indices

The sectoral performance indexes were largely bullish, except for the NSE Industrial Goods and Banking that closed 0.41% and 0.04% lower respectively, while the NSE Insurance led the advancers, after gaining 0.96%, followed by the NSE Consumer Goods and Oil/Gas  with 0.33% and 0.08% up respectively.

Market breadth was positive as advancers outnumbered decliners in the ratio of 18:11, while market activities in terms of volume and value traded were mixed with volume rising marginally by 5.02%, as investors traded 175.33m shares, slightly higher than the previous day’s 167.14m units. Transaction value dropped 28.93% to N1.43bn, as against Friday’s N2.01bn. Volume was boosted by trades in FBN Holdings, Unilever, Guaranty Trust Bank, Fidelity Bank and Jaiz Bank.

The best performing stocks during the session were Cornerstone Insurance and Unilever that topped the advancers table with 9.09% and 7.14% respectively, closing at N0.60 and N12.00 per share on the back of the seven bonus shares for every 30 held, and market forces. On the flip side, Champion Brewery and Honeywell Flour lost 9.47% and 8.57% respectively, closing at N0.86 and N0.96 respectively on sell down and profit taking. 

Market Outlook

We expect a mixed performance on increase profit taking and buying interests, as corporate earnings and economic data are expected in the market, especially earnings reports of the big banks, and inflation report for July, low prices of stocks and high dividend yields attracts buying interest to equity market. This is despite the likely continuation of the mixed intraday movement in the midst of likely profit booking, with investors buying increasing positions in undervalued stocks ahead of Q3 numbers and last quarter of the year. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation and unstable economic outlook for 2020 as the government and its economic managers are going front and back with mismatch polices.

Also, investors and traders are positioning in anticipation of interim dividend pay companies earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.

We see investors focusing on portfolio adjustment and rebalancing by  targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.

Again, the current undervalue state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation for the rest of the year.

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Ambrose Omordionm

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467