NGX Index Slips Further, Amidst Cautious Trading Ahead Of H1 Earnings Onset

Market Update for June 23

Selling pressure continued on the Nigerian Exchange at the midweek with negative sentiment dominating activities, leading to a marginal slide in the benchmark NGX All-Share index on a low traded volume and negative breadth.

The slowdown in losing momentum is an indication that reversal is underway as the index action formed a zigzag corrective pattern that supports an uptrend. It unfolds in waves for clearer direction with momentum divergence as volume declined, signaling the possibility of smart money marking up ahead of quarter-end and half-year earnings reporting season. 

The three trading sessions of pullbacks have created buy opportunities for discerning investors and traders that understand the operation of stock markets, even as all eyes are on the coming earnings season. This is because the coming reports will determine the state of quoted companies and by extension, the various investments portfolios, considering the changing price patterns and trading environment which would help in making informed decisions. 

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Meanwhile, midweek’s trading started slightly on the downside but oscillated between midday to afternoon on profit taking and selloffs, a situation that pushed the composite index to an intraday low of 37,805.46 basis points from its highs of 37,851.38bps. 

Market technicals were negative and mixed, as volume traded was lower than previous day’s in the midst of breadth favouring the bears on a selling pressure as revealed by Investdata’s Sentiments Report showing 100% ‘sell’ volume.  Total transaction volume index stood at 0.94 points, just as impetus behind the day’s performance was relatively strong, as seen in the 571,32pts Money Flow Index, compared to previous day’s 57.19pts, indicating that funds left the market.

Index and Market Caps

At the end of the day’s trading, the benchmark NGXASI lost 42.61bps, closing at 37,804.46bps, from an opening level of 37,847.07bps, representing a 0.11% drop, just as market capitalization fell by N22.21bn, closing at N19.7tr, from its opening value of N19.73tr, also representing a 0.11% value loss.

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The downturn was driven by selloffs and profit booking in high and low cap stocks like Zenith Bank, FBNH, Access Bank, UACN, Ecobank Transnational Incorporated, and Oando, among others. This mildly impacted on Year-To-Date loss, raising it to 6.12%, while the drop in market capitalization YTD stood at N1.36tr, representing a 6.43% drop from its opening value for the year.

Bearish Sector Indices

Performance indexes across sectors were down, except for the NGX Consumer Goods that gained 0.16%, while NGX Banking led the decliners after losing 0.75%, followed by Insurance and Energy with 0.51% and 0.10% lower respectively. As Industrial goods was flat.

Market breadth was negative as losers outnumbered gainers in the ratio of 23:11, while activities in volume and value terms were down as players traded 208.36m shares worth N1.6bn, compared to the previous day’s 218.27m units valued at N2.73bn. Volume was driven by trades in Zenith Bank, Etranzact, Fidelity Bank, Royal Exchange and Japaul Gold.

FTN Coca and Ikeja Hotel were the best performing stocks for the day after gaining 10% and 9.89%, closing at N0.33 and N1.00 per share respectively on market forces.  On the flipside, Royal Exchange and Japaul Gold lost 10% and 9.80% respectively, closing at N0.63 and N0.46 per share, on profit taking and selloffs.

Market Outlook

We expect a reversal after NGX index action has formed a zigzag corrective pattern that signals an uptrend as we wait to confirm the trend Thursday on market forces as bargain hunters take advantage of pullbacks to reposition ahead of quarter end and earnings season. It is noteworthy that oil price continues its recovery at the international market with full-year and interim dividend possibilities around the corner. 

We note that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $73pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery that will enhance the market and give direction.

The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer negative real rate of return due to the galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in July.


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