NGX: Bargain Hunters May Position On Pullbacks, As Investors Digest MPC Outcome

Market Update for March 22

Selling pressure continued on the Nigerian Exchange on Tuesday in the midst of volatility and mixed sentiments as the benchmark All-Share index closed lower on an above-average traded volume and negative breadth. The market, thereby, extended its negative outing for the fourth successive trading session, as investors and traders seemingly digest the outcome of Monday’s meeting of the Central Bank of Nigeria’s Monetary Policy Committee (MPC), and reasons adduced for voting to retain rates unchanged, particularly the need not to deflate the marginal recovery seen so far in the Nigerian economy. We note plans by the CBN to intervene in the petrol products sector with the aim of making fuel and AGO available, to ease the pain of manufacturers in the face of the epileptic power supply, a situation we believe will help their facilities remain open.

Also on Tuesday, Chemical & Allied Products announced the offer of N1.25 kobo dividend per share for 2021 financial year, with an option for qualified shareholders to convert theirs to bonus shares.

The wait-and-see attitude of market players continued on Tuesday despite the improvement in volume traded, as investors increased their positioning in banking stocks for dividend as the qualification and price adjustment dates draw closers, ahead of their Q1 2022 earnings reports for which companies have started notifying the exchange. Tentatively, the mixed direction of fixed income market yields and declining rates in TB may trigger the return of more funds to the equity space despite the seeming negative trend prevailing in the market amidst the ongoing war in Ukraine, and panic selloffs that have affect the market in recent sessions.

The oscillation in oil prices now trading above $115 per barrel at the international market is pushing production cost up, while heightening inflationary pressure across the globe, thereby influencing the monetary policy of the central banks as they move to checkmate impacts of the Russia-Ukraine conflict on the global economy. The recent uptick in domestic inflation is a potent threat to the fixed income market and investment yields, which should be a pointer that funds may likely flow into the equity space as institutions increase their positions for the short-term in companies with strong fundamentals that will support price and higher payout in this earnings season.

Price correction and pullbacks in the face of the earnings reporting season have created ‘buy’ opportunities for smart and discerning traders. However, we warn that market consolidation and correction are not over yet, the oscillating trend signals that a major uptrend is underway, especially when it gets to the level where it is good enough for fixed income market players, among others, to jump into equity positions.  

The candlestick formation as of Tuesday’s trading reveals a likely continuation of trends, or reversal, depending on market forces as trading opens today. The NGX index’s action pulled back again to remain in the distribution phase, trading below its 20-day moving average. The benchmark index remains strong and within the 47,000 basis points region which is the strong support level, as volatility persists and downtrend towards the next breakdown is sported around 47,122.34bps. Should the index break this point, the next visible support is 47,042.19 points.

Technically, the ongoing volatility is best described as pullbacks in a consolidation range, even as the session’s selloffs and buying interest could be linked to profit-taking across the major sectors that rallied recently. This is happening ahead of more 2021 full-year earnings season and Q1 numbers.  The possibility of the market reversing this trend is a function of impressive numbers and improved economic condition during this earnings season, following which we advise investors to play dividend stocks to reduce investment risks around the market.

Tuesday trading started on the downside and oscillated on selloffs and buying interests in blue-chips, a situation that pushed the NGX’s index to an intraday low of 47,134.23 basis points from its highs of 47,196.55bps, before closing slightly below its opening point at 47,156.55bps.

Market technicals were negative and mixed, with volume traded higher than the previous days in the midst of breadth that favours the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 25% ‘buy’ volume and 75% ‘sell’ position. Total transaction volume index stood at 0.89 points, just as the energy behind the day’s performance remained strong with Money Flow Index looking down at 57.87pts, from the previous day’s 62.29pts, indicating that funds left the market.

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Index and Market Caps

At the end of Tuesday trading, the key performance lost 95.37bps to close at 47,156.37bps, after opening at 47,251.93bps, representing a 0.20% decline. Similarly, market capitalization fell by N51.40bn, closing at N25.41tr, from the previous day’s N25.47tr, which also represented a 0.20% deprecation in value.

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Meanwhile, the downturn was driven by selloffs and profit-taking in Nestle, Gunness, Unilever, ETI, NGX Group, UBA, United Capital, GTCO, Lafarge Africa, Zenith Bank, Eterna, and Fidson, among others. This impacted negatively on Year-To-Date gain, which dropped to 10.39%. Market capitalization growth stood at N2.73tr YTD, representing a 14.19% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were in red, led by NGX Consumer Goods which shed 1.55%, followed by Insurance, Energy, Banking and Industrial goods with 1.38%, 1.01%, 0.38% and 0.08% respectively.

Market breadth was, negative, as losers outnumbered gainers in the ratio of 29:16; just as activities in volume and value terms were up, as investors exchanged 303.48m shares worth N3.90bn. Volume was driven by trades in Access Bank, UBA, Fidelity Bank, GTCO and Zenith Bank.

NPF Microfinance and FCMB were the best-performing stocks for the session, gaining 9.52% and 7.94%, closing at N2.53 and N3.67per share respectively on impressive earnings and market expectations. On the flip side, Japaul Gold and Champion Breweries lost 8.82% and 8.78% respectively, closing at N0.31 and N1.87 per share, on selloffs.

Market Outlook

We expect improved sentiments on higher dividend yields, as bargain hunters take advantage of the pullbacks to position as investors digest the inflation data, ahead of the inflow of more release of 2021 audited financials with dividend announcements to support uptrend during this earnings season and oscillating oil prices. Just as the market continues to interpret economic data in relationship with crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements, as 2021 Q4 GDP up at 3.98%, while the International Monetary Fund is calling for a hike in the interest rate and further devaluation of the Naira.

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