Mixed Trend Ahead, Amid Profit-Taking, Repositioning Ahead Q3 Earnings Season

Market Update for October 6

The bulls continued to dictate proceedings on the Nigerian Exchange at midweek, following which the market gained marginally on a very high traded volume and negative breadth, thereby extending its positive outing for the fifth successive session, and despite the seeming profit-booking by players.

Notably, buying interests in banking and industrial goods stocks supported trading in the face of mixed trends and a gradual return of liquidity to the market due to portfolio switch by fixed income market players ahead of the Q3 earnings season that is around the corner.

The expected impact of debt recovery from the oil and power sector has triggered demand for banking stocks, as these will have positive effects on the banks’ profitability and support its final payout for the year 2021.

During the midweek trading session, stocks like FCMB, Africa Prudential, Livestock Feeds, and others broke out their minor and major resistance levels as others make new highs.  

The increasing volume of trades in recent times, is an indication of rekindled investor confidence, as the market still remains undervalued, looking at NGX price to earnings ratio that is below 12 times.  The market broke out some resistance levels on new moves, following which we should expect a slight pullback on profit-taking this week or next week before the Q3 numbers starting hitting the market, even as more companies notify investors of their closed periods and board meeting dates. The state of the expected earnings reports and level of liquidity in the equity space will determine the possibility of another rally in the new month and quarter.  The two and three-year savings bond rates of 6.9% and 7.9% respectively should not threaten the equity market for now, until we see anything to the contrary. The money flow index read 79.91 points, indicating the entrance of funds into the equity space.

Investors should hold onto their high value and growth stock positions, even as a direction in the fixed income market yields and rates is still not clear, this is not unexpected as funds flow to where there are higher returns.

Meanwhile, midweek trading started on the upside and oscillated on positioning and profit-taking that pushed the key performance index to an intraday high of 40,883.39 basis points, from its lows of 40,716.66bps, after which it closed slightly above its opening points at 40,765.20bps.

Market technicals were positive and mixed as volume traded was lower than the previous day’s, in the midst of breadth favouring the bears on a sell sentiment as revealed by Investdata’s Sentiment Report showing 21% ‘buy’ position and 79% sell volume. Total transaction volume index stood at 1.50 points, just as momentum behind the day’s performance was strong, with Money Flow Index looking up at 81.28points, from the previous day’s 79.91points, indicating that funds entered the market.

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Index and Market Caps

The benchmark index, at the end of Wednesday’s trading, inched up by 48.54 basis points and closed at 40,765.20bps after opening at 40,716.66bps, representing a 0.12% up, just as market capitalization rose by N25.3bn, closing at N21.24tr, from the opening value of N21.22tr, also representing 0.12% value gain.

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Wednesday’s upturn was driven by demand for Lafarge Africa, Zenith Bank, UBA, FBNH, Access Bank, Vitafoam, UACN, and Fidelity Bank, among others, which impacted positively on Year-To-Date gain, raising it to 1.23%. Market capitalization was up by N184.28bn YTD, representing a 0.88% growth from the year’s opening value.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Banking and Indusial Goods closed 0.6% and 0.55% higher respectively, while the NGX Insurance Index lost 0.67%, followed by Consumer goods and Energy with 0.15% and 0.04% respectively.

Market breadth was slightly negative, as losers outnumbered gainers in the ratio of 20:19, while activities in volume and value terms were mixed, after stockbrokers traded 400.65m shares worth N3.48bn, compared to the previous day’s 433m units valued at N3.13bn. The day’s volume was driven by trades in FBNH, Transcorp, Ecobank Transnational Incorporated, UBA, and Fidelity Bank.

FBN Holdings and University Press were the best performing, gaining 7.78% and 7.38% to close at N9.70 and N1.31 per share respectively on market sentiments and expected Q2 earnings report. On the flip side, Pharma Deko and ABC Transport lost 6.01% and 5.71% respectively, closing at N2.66 and N0.33 per share purely on profit-taking.

Market Outlook

We expect a mixed trend on profit-taking and repositioning ahead of the Q3 earnings season and the positive candlestick formation to remain bullish as revealed by momentum indicators and volume. It is equally noteworthy that investors and traders are taking advantage of the likely pullback to accumulate more positions ahead of the earnings reporting season. Also noteworthy is the fact that many stocks are trading within their buy ranges, a situation expected to attract more funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

Also, institutional investors and others continue to digest recently release economic data, the outcome of the Treasury Bill auction were 91 and 182 days tenor rate remain unchanged and 364 days slightly up by 30points to 7.50% for a whole one year ahead of last quarter and year-end repositioning of portfolios. Also, investors are still observing the interplay of forces in the FX market as the CBN postpones the launch of the new digital currency platform. The day’s high volume suggests that institutional investors and others are gradually taking the position in the market, as they look at the economic data and policy direction of the economic managers. It is noteworthy that oil price pullback in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605