NGSE Index May Rebound On Earnings, Sectoral Rotation, Portfolio Rebalancing

Market Update for July 29

Midweek’s trading on the Nigerian Stock Exchange (NSE) overturned previous day’s slide, continuing the swing on a low volatility and traded volume that revealed cautious trading among market players in the face of the mixed earnings reporting season.

The influx of corporate earnings during Wednesday’s trading and after, being the last trading day of July, owing to the public holiday declared on Thursday and Friday by the Federal Government supported the market upturn. This is in addition to the performance of stocks in the energy, insurance and Industrial Goods subsectors that propelled the positive outing.

Most of the company scorecards that were released so far reflected the effects of the lockdowns occasioned Coronavirus pandemic, as most of the companies posted negative and mixed numbers. The few outstanding numbers so far are from United Capital, Jaiz Bank, Okomu Oil, Lafarge Africa, prestige assurance. The sectors that posting the worst earnings performance are Consumer Goods and petroleum products marketing, considering the numbers that emanated from Unilever, Cadbury, International Breweries,  Total Nigeria, Seplat, and Eterna and others like CAP. 

This is likely to influence dividend payouts for this current financial year negatively across some sectors and companies, while those benefiting from the pandemic and economic shutdown are likely to grow their dividend for the year.

Consequently, we expect sectoral rotation and portfolio rebalancing in favour of stocks with strong earnings performance. This mixed trend and volatility will continue in the new month as investors await the reports from interim dividend paying stocks.

Meanwhile, midweek trading opened slightly on the upside but oscillated in the mid-morning to afternoon on buying interests in high priced stocks and profit taking, which pushed the benchmark index to an intra-day high of 24,783.61 basis points, from its low  of 24,427.73bps, before closing higher at 24,693.73ps. 

Market technicals for the day were positive and weak with volume traded lower than the previous session in the midst of breadth favoring the bulls and mixed sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 75% and sell volume of 25%. The total daily transaction volume index stood at 0.53, while momentum behind the day’s performance stayed weak, with Money Flow Index reading 37.82 points, as against the previous 37.82ps, indicating that funds entered some stocks.

Index and Market Caps

At the end of Wednesday trading, the key performance NSE All-Share Index gained 43.57basis points, to close at 24,693.73ps from 24,650.16bps, representing a 0.18% rise, just as market capitalization was up N23bn closing at N12.88tr from the N12.86tr it opened, which also representing 0.18% value gained.

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The day’s upturn was due to investors positioning ahead of interim dividends, a situation that impacted mildly on the NSE’s benchmark index, reducing its Year-To-Date loss to 8.00%, while market capitalization YTD remained positive at N58bn, representing a 0.34% improvement over the year’s opening level.

Bullish Sector indices                                                                    

The sectorial performance indexes were largely bullish except for the NSE Banking that closed lower by 0.21%, while NSE Oil/Gas index led the advancers after gaining by 4.58%, followed by NSE Insurance and Industrial Goods which were up by 1.40% and 0.27% respectively. Just as NSE Consumer Goods close flat.

Market breadth turned positive, as advancers outnumbered decliners in the ratio of 18:14, while activity in volume and value terms were down by 32.45% and 50.78% respectively, as investors exchanged 101.59m shares worth N973.64m, as against the previous 150.4m units valued at N1.98bn. This volume was driven by trades in Guaranty Trust Bank, FCMB, UBA, ETI and Sterling Bank.

The best performing stocks for the day were Seplat and Cornerstone Insurance gaining 10% each and closing at N310.20 and N0.55 per share respectively on market forces. On the flip side, NPF Microfinance and ARBICO that closed at N1.18 and N1.39 per share respectively on profit taking and selloff.

Market Outlook

We expect the market’s index to look up as more earnings are released to the market, the impact of positive news of a Coronavirus vaccine on oil price and impact of CBN policies on the economy ahead of long holiday.  Just as investors are equally worried about inconsistent government policies which have continue to dampen confidence.

This is likely to support the wave of decline as pullbacks persist, creating new entering opportunities. Money flow index has continued to look up at 38.83 despite flowing from one sector to the other, seeking value in terms of low prices with high upside potentials.

This is just as economic recovery is threatened by the rising cases of the COVID-19 pandemic, as earnings reporting season has kicked off, which implies that opportunities are still available as sectoral rotation continues. Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment.

For immediate liquidity or cash, we advise that you trade low priced stocks with serious caution to avoid being trapped. However, the market’s high dividend yield continues to attract buying interests, as few audited and unaudited corporate earnings will hit the market, going forward. This is despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of Q2 numbers. It is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.

Again, the current undervalued state of the market offers 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 going forward. Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

NB:The home study packs and videos that will help you prepare and take advantage of the current happening in the market and economy are available at Investdata. How to invest or trade profitably in changing market dynamics and recession. Mastering earnings season for profitable investment To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085,08032055467, 08111811223 now.

 Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467

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