NGX Index Records 16.21% YTD Returns, On Medium, Large Cap Gains, Robust Earnings

Market Roundup for April 2022

Trading on the Nigerian Exchange closed positively on Friday to end activities for the month of April higher and bullish, thereby halting the correction the market witnessed in March, amid profit booking on renewed buying interests and positive sentiments. The recovery followed positive investor reactions to corporate earnings and actions released during the period, helped by the influx of Q1 numbers in the midst of rising inflation and the mixed direction of fixed income yields.

Data mined over a 21-year period, according to Investdata Research findings, shows that transactions on the Exchange have oftentimes closed positive over the period. It further revealed that the month of April and, indeed Q2 over the years, has been a period of position-taking on the Nigerian equities market, closing in the green for 13 of the 21-year period, and down in eight years.

Meanwhile, the outpouring of Q1 financials, a few second and third quarter numbers, coupled with unaudited full-year March accounts boosted market recovery during the period, despite the uncertainties arising from the Ukraine war, which has resulted in rising commodity prices globally, even as activities heighten ahead of the 2023 general elections across the country.

The candlestick pattern that represents the month’s trading activities fully consumed the pattern in the month of March, while technically forming a bullish engulfing candle that supports either an uptrend or continuation of trend. This is therefore signaling the beginning of a short bull-run in the new month, depending on market forces and outcome of central Bank of Nigeria monetary policy meeting slated for May 21-22. 2022.

Combining these facts with the current situation in the market, we conclude that the market has a stronger possibility of rallying in the month of May, apart from the uptick in long-tenored Treasury Bill rates and bond yields that remain threats to equity prices. Investors’ reaction to the first quarter numbers recently released and the qualification dates for dividends will determine how far the market will go in this new month.

Nevertheless, we note that economic fundamentals are still mixed and recovery, as all eyes are on such data as the Q1 GDP report, April inflation, Purchasing Managers’ Index, and indeed, the global trend and electioneering party activities, given the new realities, will go a long way in influencing market performance. We expect a significant negative adjustment in food inflation, especially with the rising insecurity challenges that have driven farmers off their farms and businesses.

Meanwhile, the NGX recorded 19 trading sessions during the month under review, closing higher with the composite NGX All-Share index oscillating, as the benchmark index closing north on 14 trading days, and south in five sessions. The benchmark index gained 2,673.46 basis points, closing at 49,638.94bp after breaking out the 49,000 and 49,584.74 resistance levels, from its 46,965.48bp opening level, representing 5.70% growth over the month.

The buying volume of total transactions for the month was 100%, halting the previous month down market, as volume index for the period stood at 0.89, while market capitalisation rose by N1.51tr to N26.76tr, from an opening value of N25.25tr, representing 5.97% appreciation in value. The market had positive sentiments and reactions to the audited financials corporate action dates and Q1 scorecards that beat investors and analysts’ estimates. The month’s traded volume was down by 28.96% at 6.06bn shares, excluding the 6.7bn shares deals between Honeywell and Flourmills, from 8.58bn units in the previous month.

The NGX All-Share index’s year-to-date gain position stood at 16.21%, just as market capitalisation rose by to N4.02 trillion representing 18.01% gain YTD from the opening value. 

Market breadth for April was positive as gainers outpaced losers in the ratio of 89:25 to short-lived the bear transition, reflecting the mixed economic data, positive sentiments and the barrage of first quarter earnings reports that hit the market. The earnings reports were impressive and higher than market expectations, especially such sectors as Agro-Business, Industrial goods, Telecommunication, Energy and Healthcare, some Banking and consumer goods. They helped the major index to close positively, except for Banking index that was down on the performing sectors chart for April. 

The sectoral performance chart below shows that energy stocks propelled the market the most in the period under review, gaining 19.7%, compared to 5.7% rally recorded by the benchmark NGX All Share Index. It was followed by the NGX Consumer goods which rose by 9.6%, reflecting investors’ reaction to impressive results and dividends, especially blue chip companies and their resilience over the years; ahead of the NGX Pension index, which moved 8.62% up.

This was attributed to the high payout and impressive numbers of blue chip companies and sector rotation, amidst the relatively low Price-To-Earnings attraction in the market. Also, other indexes that closed green during the month included: NGX Premium, NGX 30, Mainboard, NGX Insurance, Banking and Industrial goods with 8.4%, 5.63%, 5.63%, 4.7%, 4.2% and 3.19% respectively.

Sources: NGX Report, Investdata Research

Best Performing Stocks for April

The month’s best performer was Meyer, which is one of the major low price stocks benefiting from market sentiment and strong shareholding structure. It closed the month better by gaining a significant 354.55% of its opening price for the month. It was followed by Nahco, which chalked 52.56%; while Nigerian Breweries chalked 41.16%; and Oando, 30.71%.

Medium and high cap companies dominated the top gainers for the month included: Guinness 30.63%; UPDC, 30.49%; among others.

Sources: NGX Report, Investdata Research

Worst Performing Stocks for April

The top losers table was led by NPF Microfinance, which shed 20.48%, on the back of profit taking and mixed performance of its earnings, despite bonus of one new share for every nine held. Also, market forces and the mixed sentiment dragged SCOA down by 18.49%; while Academy Press declined by 16.95%; Total Energies, 11.48%; and Cornerstone Insurance, 10.61% on the back of profit taking and selloffs.

Sources: NGX Report, Investdata Research

Technical View on Monthly Time Frame

NGX index’s action sustained its uptrend and positive sentiment technically in the month of April, as it formed a bullish engulfing candlestick that revealed that buyers are in charge, which support uptrend depending on market forces in the new month. The renewed buying interest and positive momentum for Q1 financials are likely to continue after the holidays declared by the Nigerian government for the international Labour Day and Id-El Fitr celebrations between Monday and Wednesday. The inflow to equity assets as revealed by money flow index has supported the bull-run while smart money reposition their portfolios.  

Where To Invest And Expectations For the Rest of Q2

The global economy and markets remain mixed and dicey as changing global trends and geopolitics threats to recovery across climates, with the World Bank recently downgrading its economic growth outlook, based on the raging war between Russia and Ukraine, rising commodities prices and high inflation across the globe. 

Back home, the seeming economic recovery and mixed indicators are likely to continue in the new month as we expect more economic data and the events to confirm the real state of the nation’s economy as implementation of the 2021 and 2022 national budget continues. This will be helped by the CBN’s sustained interventions in critical sectors to reduce production cost, enhance job creation and support recovery. Reasons for this are not far-fetched, given the impact of high energy cost and insecurity in the system.

In May, we expect the release of April consumer price index (CPI) by the National Bureau of Statistics (NBS) that would show by how much the ongoing realities in the country are feeding into the inflation numbers. Also, the CBN’s Purchasing Managers Index (PMI) for April is expected in this month, and the GDP data much later in the month, to confirm the true state of the economy.

With the corporate earnings reporting season extended to May and June for the few March year-end accounts, the fundamentals of these earnings and dividend declaration will support the ongoing positive outlook in market. Also, we note that many high cap stocks have this month as their qualification and mark down dates, a situation that will keep the market oscillating and at the same support the ongoing rally.

Traders and investors who understand the importance of combining fundaments and technical analysis in making investment decisions in the stock market should take this opportunity to position in some sectors for medium and short-term gains, especially the telecom, Industrial, agribusiness, banking and consumer goods after a carefully study of recently released numbers to the market.

What to expect in May and June

  • Release of few outstanding quarterly and full-year earnings, while those from blue-chip companies may strengthen market fundamentals in May.
  • Continuation of the oscillating trend of equity prices as a result of repositioning of portfolio along the line of positive numbers and profit taking. Also the second half of this year will likely be dominated by positive sentiment.
  • Market outlook for May is mixed but remain dicey, in line with popular saying that traders always “sell in May and come back in October,” which may not be applicable in the current trend of our market that has changed. In the Nigerian market, the month of May has closed positively in 13 times over the 21 years. But with the impressive Q1 numbers so far; the oil price oscillating above $105 per barrel in the global market and the CBN intervening in the FX market to create stability.
  • The sustained low valuation in the market may trigger high demand for stocks as players realign their portfolios to hedge against the rising inflation. However, there is need to invest wisely, using bids, offers and volume when taking decisions as a trader.
  • Managing risks and protecting capital at this point is very important, which is why you must determine when to buy or sell, by watching the stocks and the market, using technical analysis and stop loss at any time. Look for investdata daily sentiment report and home study video packs to up your investing and trading education.
  • Let numbers released by the companies guide your decisions and time to stay in any particular position.
  • Full-year earnings reports of March year-end companies will start hitting the market this month until June.

As the market extend its markup phase in a recovery move, it is time to combine fundamentals and technical tools to take decision by knowing the support and resistant levels to reposition or exit any position. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your watchlist to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08179547605.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605