NGX Index Poised For Upswing On Declining TB Rates, Earnings Inflow, Dividend News

Market Update for February 9

Trading activities on the Nigerian Exchange at the midweek had a positive outing, as the key performance NGX All-Share index closed higher on a less than average traded volume in the midst of a positive market breadth that revealed rekindled buying interests among the players as corporate actions release dates for the big names and companies with high dividend yields draw closer. This is especially as long-tenored TB rates at the end of this week’s Primary Market Auction declined further, as institutional players scampered in search of better returns on their investments. This is expected to push excess funds in the financial market to the equity space ahead of the expected dividend announcements. 

The renewed buying interests and positive sentiments in the face of market volatility halted the three sessions of negative outing and profit-taking as more corporate earnings and actions are expected to start hitting the market any moment from now. Also, investors, investors need to play the market more intelligently at this time by effectively combining technical and fundamental analysis at this point, especially the given the ongoing volatility that comes with earnings reporting season. While allowing your investment goal and stop-loss guide you, you must not be carried away with the galloping in the market as strength return again. Instead, let the impressive numbers give you an insight into what the final dividends of these companies will look like, especially those expected to grow their payouts, judging by the Earnings Per Share and established dividend policies.  

Technically, the NGX’s index action witnessed a marginal rebound after three consecutive days of loses, trading above the 47,000 psychological line, that signaled an uptrend and change in trend, which we need as the market opens on Thursday. The buying sentiment on improved traded volume, signals the entrance of funds into the market, as institutional players likely increase their positions on the back of the previously noted decline in TB rates. Trade metrics for the session reveal increase position taking, as investors look forward to corporate actions hitting the market any moment from now, as some banking and non-financial stocks like Access Bank, Fidelity Bank, as well as the NGX Group among others hit new 52 week highs.

Midweek’s candlestick formation signaled a change in trend, as players look to market forces, with the NGX index trading above its 20, 50 and 200-Day Moving Averages, while momentum indicators were positive and flat with the ADX reading 62.42, while RSI closed above 50 at 73.62 and Money Flow Index stayed flat at 68.61 points on the daily time frame. The continuation of this trend depends largely on the interplay of market forces and flow of funds into the equity space, as direction of the fixed income market yields remains unclear with rates not rising as expected.

Meanwhile Wednesday’s trading opened slightly in the green which was sustaining throughout the session on position taking across all sectors, pushing the index to an intraday high of 47,157.23 basis points, where it closed for the day, from its lows of 47,057.24bps.

Market technicals were positive and mixed, as volume traded was higher than the previous day’s in the midst of breadth favouring bulls on positive sentiment as revealed by Investdata’s Sentiment Report showing 100% buy volume. The total transaction volume index stood at 0.89 points, just as momentum behind the day’s performance remained strong. Money Flow Index slightly down at 68.61 points, from the previous day’s 68.96 points, indicating a flat position as regard funds entering the market.  

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Index and Mkt Cap Movement 

The composite index, at the end of trading, inched up by 99.99 basis points to 47,157.234bps, after opening at 47,057.24bps, representing a 0.21% rise, just as market capitalization rose by N53.88bn, closing at N25.41tr, from the opening value of N25.36tr, also representing a 0.21% value gain.

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The session’s upturn was powered by position-taking in Access Bank, Flour Mills, UBN, Ecobank Transnational Incorporated, NEM, Sterling Bank, Fidelity Bank, Learn Africa, SCOA and Neimeth Pharmaceuticals, among others. This impacted mildly on Year-To-Date gain, which increased to 10.40%. Market capitalization growth stood at N2.83tr YTD, representing a 14.77% rise over the opening level for the year.

Bullish Sector Indices 

Performance indexes across the sectors were bullish, led by NGX Banking which gained 1.68%, followed by Consumer goods, Insurance, Energy and industrial with 0.65%, 0.18%, 0.09% and 0.03% respectively.

Market breadth tuned positive as gainers outnumbered losers in the ratio of 27:14, while transactions in volume and value terms were mixed, after the players exchanged 297.25m shares worth N4.70bn, compared to previous day’s 238.22m units valued at N5.01bn. Volume was boosted by trades in Access Bank, Sovereign Trust Insurance, NGXGROUP, Fidelity Bank and Transcorp.  

RT Biscoe and SCOA were the best performing stocks during the session, gaining 10% and 9.49% respectively, closing at N0.33 and N1.50 per share on market sentiment and forces.  On the flip side, Juli and Multiverse lost 9.89% and 4.76% respectively, closing at N0.82 and N0.20 per share, on selloffs.

Market Outlook

We expect the further decline in TB longer tenor rate to boost the positive vibes at this ongoing earnings season as more audited financials with corporate actions start to hit the market in the midst of profit taking and portfolio rebalancing, as market players target fundamentally sound and dividend paying stocks in expectation of dividend announcement, as oil price oscillates to trade at $92, which is one factor that also continues to support economic and market fundamentals.  Just as inflation remain high at 15.63%.  Also noteworthy is the oil price that remains above $74 projection of IMF at $92 plus, while the International Monetary Fund is calling for hike in interest rate and further devaluation of Naira.

As market players digest the quarterly and unaudited 2021 full year results available in the market and what is happenings in fixed income market after the NGX index action pullback slightly to trade above its 50-Day Moving Average on a low sell volume in the face of assets rebalancing and changing pattern in February as market look forward to audited 2021 earnings reports.

The relatively low volume traded in the midst of volatility and recovery moves are creating new buy opportunities on the strength of corporate numbers and economic data. Also, candlestick formation and volume traded during the session revealed that institutional players are not buying yet.  It is equally noteworthy that during a ranging market many players seat on the fence waiting for a breakout or down before jumping into any position.  Even as many stocks are trading within their buy ranges, a situation expected to attract more funds into the stock market, given the Dividend Yield capable of serving as a hedge against inflation.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605