Negative Sentiment Prevails, As Investors Await Banks’ Recapitalization Plans, Q1 Earnings Inflow

Market Update for April 16

The bearish wave and panic selling on the Nigerian Exchange continued on Tuesday across major sectors of the market as expected, with the NGX had recording a significant rally in Q1 on the price appreciation by highly priced stocks. This was complemented by the listing of new stocks and expectation of full year 2023 audited financials that were mixed in performance and payouts as revealed by the numbers and corporate actions.

The negative sentiments and selloffs trilling the market is a reflection of changes in market fundamentals, amid the higher interest rate and yields in alternative investment windows in the face of mixed economic data and ongoing reform policies of the government. Also, market players have continued to digest recent macroeconomic reports and unfolding activities in the exchange market with regard to how it impacts productivity level on the nation economy going forward and attraction of foreign inflow.

The composition of the new capital structure of banks as directed by the Central Bank of Nigeria in view of the new capital  base with the exclusion of retained earnings from the computation of capital structure has dented confidence. Nonetheless, Nigerian banks remain strong and resilient as revealed by the numbers released by them so far. Attention has shifted to their Q1 numbers which has given insight into what the new financial year will look like as the CBN and the market expect them to roll out their recapitalization plans for the next two years.

The NGX All-Share index closed lower on Tuesday, as the prevailing sell sentiments continued for eight consecutive sessions on a low traded volume. This has extended the four weeks of negative outing in the face of negative market internals and selloffs in blue chip companies, despite the ongoing earnings reporting season and mixed dividend payouts of the companies which reflected the state of the numbers posted for the year 2023.

As market players continue to digest and study the mixed corporate earnings and macroeconomic data that reveal the state of the economy and impact of the ongoing government policies. All eyes are on the nation’s Q1 GDP which will give more insight as to where the economy is headed. This is notwithstanding the relative stability that has returned to the foreign exchange market in the face of rising inflation, increasing foreign inflow and Naira appreciation due to CBN releasing dollar to BDC as intervention and clearing FX backlog.

The NGX index’s action continued to trade below the T line and 50 day moving average to confirmed weak momentum and extending decline phase, as the index witnessed another down market on increased magnitude at the end of Tuesday trading, just as 8 day moving average exponential is about to breakdown the 50 DMA to confirm continuation of trend depending on market forces and state of Q1 earnings reports of listed companies.  As market players also look at corporate actions to position for dividend income. Although, we see fiscal and monetary policies trying to return the nation’s economy to the path of recovery, even with the continued mismatch of policies and implementation style. As declining oil production in the last months is a minus to the nation reserve.

The notifications for AGMs of companies listed on the NGX, as well as closed period and board meeting to approve unaudited Q1 2024 reports continue on the exchange. The latest came from Union Dicon Salt, Transcorp, Omatek, BUA Foods and CAP, while Airtel Africa updated the market on the ongoing share buyback, even as Infinity Trust Mortgage Bank informed the market of CBN approval of appointment of directors. Therefore, investors should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle.

Technically, the NGX is weak as selling sentiment persists as revealed by candlesticks formation and momentum indicators. This indicate weakness in the market, as ADX inched up at 30.87, while RSI and Money Flow Index are down to read 38.71 and 32.50 points against the previous session 44.25 and 32.90 points respectively.  Market players should watch this current trend and trade with caution after the index had confirmed markdown phase and correction since the first trading session in Q2. Also, trading volume pattern remained mixed, to suggests wait and see in some sectors and selloffs in the face of others investment windows returns remain below inflation at 33.2% as Naira continues to look up in recent days.

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Oil price further pulled back on Tuesday  to continue its oscillation, as it trade below $90 at $89.59 per barrel in the midst of demand concerns outweighing  Middle East supply fear as China economic momentum weaken in the face of US inventories rising. Even as rising geopolitical tension across the globe remained a major threat to many economies and the commodity market and other factors that impact oil price as it continued to rally. This trend may likely continue in 2024, this up and down movement that drive volatility. As middle East conflict and war in Ukraine last.

Tuesday’s trading started in the downside and it was sustained throughout the session, despite oscillating on profit taking and selloffs across the sectors, a situation that pushed the NGX’s index to an intraday low of 100,708.9bps from its highs of 101,777.09bps, before closing below its opening figure at 100,717.20bps.

Trade metrics for the session were negative and mixed, as volume was higher compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 1% buy position and 99% sell volume. The total transaction volume index stood at 0.87 points, just as energy behind the day’s performance was  weak as Money Flow Index is looking down to read 32.50pts, from the previous day’s 32.90pts, indicating that funds left  the market.

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Index and Market Caps

The NGX All-Share Index at the end of Tuesday trading shed 1,059.91bps, closing at 100,717.21bps after opening at 101,778.47bps, representing a 1.04% decline, just as market capitalization fell by N599.45bn, closing at N56.96tr from the previous day’s N57.56tr, which also represented a 1.04% depreciation in  value.

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Meanwhile, Tuesday downturn was driven by selloffs and profit taking in the shares of Dangote Sugar, Unilever, MTNN, Transcorp, Zenith Bank, Accesscorp, UBA, GTCO and Wapco among others. This impacted negatively on Year-To-Date gain which reduced to 33.48%. Market capitalization YTD gain stood at N12.85trillion, representing 39.18% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes were down as NGX Banking led the decliners with 5.75%, followed by Insurances, Consumer and Industrial goods with 3.27%, 1.02% and 0.06% respectively, while Energy finished flat.

Market breadth was negative as losers outnumbered gainers in the ratio of 50:7, while transactions in volume and value were up after investors exchanged 403.89m shares worth N8.38bn. Volume was driven by trades in  Accesscorp, GTCO, UBA, Zenith Bank and Fidelity Bank.

Morison Industries and Thomas Watt were the best performing stocks, gaining 9.96% and 8.63% closing at N3.09 and N2.14 per share respectively on market forces and sentiment. On the flip side, Vitafoam and Fidelity Bank lost 10% each, closing at N18.90 and N8.10 per share, purely on profit taking.

Market Outlook

We expect mixed and bearish sentiment continued in the face of plan bank recapitalsiation  as more corporate earnings inflow with dividend announcements, while taking advantage of pullbacks to position and rebalancing portfolio.

This is amid the volatility and pullbacks that add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd