Equities

NGSE Index Slide, As Investors Realign Portfolios, Await Audited Filings

Market Update for February 1

Profit taking resurfaced on the Nigerian Stock Exchange (NSE) on Monday, the first trading day of February, cutting back the market’s winning streaks as the composite All-Share index closed marginally lower, thereby halting five consecutive sessions of bull-run on a low traded volume, but positive market breadth.

This seeming slowdown is normal and expected, after the market has been on an uptrend all this while, especially after the last week’s Monetary Policy Committee meeting confirmed analysts’ expectations. The possibility of traders cashing out their capital gains are high, but this reversal pattern or signal will be confirmed after Tuesday’s trading, depending on market forces and sentiments.

More companies announced their closed periods and board meetings, just as some other released their quarterly and unaudited 2020 full-year earnings reports to the investing public, amidst portfolio reshuffling and repositioning ahead of the earnings season’s peak. Ahead of that, early filers are likely to start hitting the market in this new month, thereby supporting the change in trading pattern and uptrend, considering the funds entering the market as revealed by money flow index reading 71.15 point at the end of Monday.

We advice that investors and traders should be guided by their investment objectives, effective entry and exit strategies at all time, given that the ongoing release of unaudited financials by companies with December year end will further dictate market trend through this week, and for the rest of the month. Investors are therefore encouraged to play by the numbers, looking at dividend stocks and companies with prospects to grow their earnings capacity in 2021.

Meanwhile, the day’s trading started in the green into the midday, before oscillating in the afternoon on profit booking from consumer goods and banking stocks that had rally recently, a situation that pushed the key performance index to an intraday low of 42,338.85 basis points, from highs of 42,472.56bps. Thereafter, it closed the session below its opening figure at 42,357.90bps.

Market technicals were positive and mixed, as volume traded was lower than previous day’s in the midst of breadth favouring the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 86% ‘sell’ and 14% buy position. Total transaction volume index stood at 1.06 points, just as the momentum behind the day’s performance remained relatively strong, with Money flow index reading 71.15pts, from the previous day’s 61.27pts, indicating that new funds entered the market, despite the profit taking.

Index and Market Caps

At the end of Monday’s trading, the benchmark index shed 54.76bps, closing at 42,357.90bps after opening at 42, 412.66bps, representing a 0.13% drop, just as market capitalization lost N28.65bn, closing at N22.16tr, from its opening value of N22.19tr, also representing a 0.13% value loss.

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The session downturn was driven by profit booking in stocks like Nestle, Flour Mills, Zenith Bank Access Bank, Julius Berger, Vitafoam, Oando, FBNH, and UBN, among others, slowing down Year-To-Date gain mildly to 5.18%, just as YTD growth in market capitalization dropped to N1.10 tr, or 5.23%.

Mixed Sector Indices

Performance indexes across the sectors were mixed, as the NSE Consumer Goods and Banking closed 1.03% and 0.08% lower respectively, while the Insurance index led the advancers after gaining 0.37%, followed by Oil/Gas with 0.22% while NSE Industrial Goods was flat.

Market breadth was positive as advancers outnumbered decliners in the ratio of 35:29; just as activities in volume and value terms were down by 12.46% and 8.62% respectively, as investors exchanged 586.81m shares worth N6.02bn, from the previous day 670.05m units valued at N6.59bn. The day’s volume was boosted by activities in UBN, Transcorp, UBA, Access Bank and FBNH.

Honeywell Flour and Champion Breweries were the best performing stocks, gaining 10% and 9.92% respectively, while closing at N1.43 and N3.42 per share, as investors reacted positively to insights into their positive Q3 earnings numbers and the recent increase in the core inestors’ stake. On the flip side, Royal Exchange Assurance and Guinea Insurance lost 10% and 9.09%, closing at N0.36 and N0.20 per share on profit taking.

Market Outlook

We expect a mixed performance and profit taking, even as the NSE index is expected to breakout 43,000 mark on expectation of the earnings season momentum and reaction that supports an uptrend as dividend yield remain relatively high. We advise that investors and traders should target dividend paying and fundamentally sound stocks with growth prospects in 2021, looking the way of mispriced companies. This is especially as the low interest rates regime and oil price rally have so far supported the economy and equity market.

There is, nonetheless, also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks ahead of the earnings season. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI reads 70 points and above, a situation that supports the likelihood of another correction.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, especially now that the outcome of the MPC meeting has given the market a direction, until the next gathering in March.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

Again, the current undervalued 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 in the rest of the year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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