NGSE Index Rebounds After Touching 3-year Intra-day Low, On Weak Market Breadth

Market Update for August 1
Thursday’s trading on the Nigerian Stock Exchange (NSE) was a continuation of its mixed performance so far, even though on a slower momentum as the composite NSE All-Share index closed marginally up to reverse the previous session’s negative outing on a very low traded volume and negative market breadth.
So far, the half-year earnings released have been weak, with most of them missing expectations and forecasts prompting negative price reactions in the midst of the prevailing low liquidity and even confidence crisis.
These are certainly major factors that have prolonged the negative market sentiments, in addition to the weak productivity and consumptions as earnings reporting season officially closed with the month of July on Wednesday. This is however except for interim dividend-paying companies, mostly banks that have to audit their accounts and await regulatory approval from the Central Bank of Nigeria (CBN).
The seeming improvement in the July Purchasing Manager Index, according to the CBN report, stood at 57.6 points as against the 57.4 points of June, showing that 11 businesses out of 14 covered recorded growth for the period under consideration.
The FBNQuest report on the manufacturing PMI for the same of July was below 50 points and reading 49.5 points lower than 49.9 points recorded in June. The slower contraction as revealed by this report shows that all is not well with Nigeria’s real sector which reflected in the Q2 corporate earnings from the manufacturing sector, because nothing has changed in the economy. Let us hope that the positive report from the CBN is sustained, with all the new initiative to make funds available for the private sector, so as to stimulate the nation’s production and consumption levels to oil the macro wheel of the economy at large.
Meanwhile, the NSEASI opened for the day’s trading on the downside as the negative sentiment arising from the numbers released so far dampened demand for stocks until midday and early afternoon. It then retraced up in the last minutes to close the session positively at 27,748.46 basis points, after touching a three-year intraday low of 27,615.46bps from high of 27,748.46bps
Market technicals for the day were positive but mixed, with volume traded lower than the previous day’s, as breadth favoured the bears, with high buying pressure as revealed by Investdata’s Daily Sentiment Report of ‘buy’ volume at 100% and sell position of 0% total daily transaction volume index of 0.43.
The energy behind the day’s performance remained weak, despite inching up, as Money Flow Index read 21.03 points, higher than previous day’s 20.98bps, indicating that funds entered some stocks as selloff slowdown among the high cap stocks.

Index and Market Cap
The benchmark NSEASI closed Thursday’s trading slightly up by 30.20bps at 27,748.46bps after opening at 27,718.26bps, representing 0.11% growth, just as market capitalization rose N14.73bn up to close at N13.52tr, from N13.51tr, which also represented 0.11% value gain.
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The day’s upturn was helped by position taking in stocks like MTN Nigeria, Flour Mills, CCNN, Dangote Sugar, NASCON Allied, Berger Paints and Fidson Healthcare, which reduced the NSE’s Year-to-Date loss to 11.71%, just as YTD market capitalization gain inched to N1.38tr or 14.34% from the year’s opening level of N11.72tr.

Bearish Sector Indices
The sectoral performance indexes were largely in the red, except for the NSE Consumer goods that closed 0.08%, while the Banking index led the decliners’ after shedding 0.96%, followed by Insurance index with 0.62% and followed by Oil/Gas and Industrial Goods after dropping by 0.54% and 0.08%respectively.
Market breadth turned negative as decliners outnumbered advancers in the ratio of 16:12; market activities were down in traded volume and value by 61.36% and 57.16% respectively to 97.36m shares worth N1.79bn, from the previous 251.93m units valued at N4.13bn. The day’s volume was driven by financial services, industrial goods and conglomerates stocks such as Zenith Bank, UBA, Lafarge Africa, Guaranty Trust Bank, and Transcorp.
Fidson Healthcare and Berger Paints were the best-performing stocks, gaining 9.76% and 9.65% respectively, closing at N4.50 and N6.25 per share, on market forces. On the flip side, Eterna and NCR lost 10% and 8.62% respectively to close at N2.70 and N5.20 on mixed earnings and market forces.

Market Outlook
Being the last trading session of the week, we expect the mixed performance to continue as investors continue to digest the earnings reports released so far, in expectation of earnings reports from interim dividend-paying stocks, as bargain hunters take advantage of new 52-week low prices. Discerning investors should target value stocks considering the current low valuation to position for dividend income and capital gain, especially as the market’s Price to Earnings ratio is 6.21x, which is well below the 11x average of its peers and a five-year average of 13.x. This revealed value and high upside potentials for a rally.
They may also take into consideration the expected economic reforms as the government is set to assign portfolio to the screened minsters, just as Central Bank of Nigeria (CBN) had earlier rollout it plans to boost productivity and investment by instructing the banks to lend more to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector to drive economic growth.
There is also the likely impact of portfolio repositioning for the second half of the year in the midst of expected Q2 numbers, especially banking stocks.

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CRO|Investdata Consulting Ltd
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