Equities

NGX Index Under Pressure, Amidst Profit Taking Ahead Of Q1 GDP, MPC Meeting

Market Update for May 19

The three days back to back bear transition on the Nigerian Stock Exchange continued at midweek, as the benchmark index NGXASI witnessed further decline on profit taking and selloffs in high and medium cap stocks that pulled the index to breakdown strong support levels on a low traded volume.  As equity market across the globe had recently suffered losses as a result of concerns for rising inflation and yields in bond market.

Despite, the nation consumer price index for April that recorded a slight decline to 18.12% from the month of march 18.17%, which according to NBS was due to dry season harvest. The market is yet to react to the seeming drop in inflation due to increasing selloffs in highly capitalized stocks to retarget sectors and undervalued equites with high upside potential to grow their earnings that will support share price in the short to long run, as investment is against expectations.

As investors await the outcome of next week’s Monetary Policy Committee meeting and other economic news expected to largely determine market direction for the rest of Q2 and until the half year earnings season kicks off in July, it is important at this point of pullbacks for traders and investors take advantage of the dip. The way to do this is by targeting companies with earnings growth, quality and enough inherent value that can match Investdata’s Earnings Gauges.

It is time, therefore, to invest wisely, guided by investment goals, especially entry and exit strategies necessary to ensure they not only survive, but profit from the expected new trend. Be guided also by current price patterns and money flow index now supporting a trend continuation as NGX index action breakdown strong support levels to trade below the systematical triangle at 38,446.09 on the 10% price decline in Airtel Africa’s share price among others.

Meanwhile, midweek’s trading opened on the downside and was sustained throughout the session on profit-taking and selloffs in high and medium cap stocks that pushed NGX index to an intraday low of 38,416.50 basis points from its highs of 39,105.55bps. The index thereafter closed below its opening level at 38,446,09bps on a slight negative breadth.

Market technicals were weak and mixed, as volume traded was lower than previous day’s in the midst of breadth favoring the bears on a selling pressure, as revealed by Investdata’s Sentiments Report showing 96% ‘sell’ volume and 4% buy position. Total transaction volume index stood at 0.55 points, just as impetus behind the day’s performance was relatively weak, as Money Flow Index looking down to read 45.84pts, from the previous day’s 51.64pts, indicating that more funds left the market.

Index and Market Caps

At the close of Wednesday’s trading, the composite NGX All-Share Index shed all of 577.19bps, one of the highest daily loss in recent times, closing at 38,446.09bps from an opening figure of 39,023.28bps, representing a 1.48% decline. Market capitalization lost N301bn, closing at N20.04tr, from its opening value of N20.34tr, also representing a 1.48% in value loss.

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Midweek’s downturn was attributed to selloffs and profit taking in heavyweights like Airtel, Dangote Cement, Guaranty Trust Bank, Zenith Bank, as well as UACN, Stanbic IBTC, and Dangote Sugar, among others. This impacted negatively on Year-To-Date loss, increasing it to 4.58%, while the drop in market capitalization YTD increased to N1.02tr, representing a 5.90% dip below its opening value for the year.

Mixed Sector Indices

The sectorial performance indexes were bearish, except for NGX Oil/Gas and Industrial Goods that closed 7.11% and 0.85% higher respectively, while NGX Banking led the decliners, after losing 0.62%, followed by Insurance and Consumer goods with 0.61% and 0.32% lower respectively.

Market breadth remained negative, as decliners outnumbered advancers in the ratio of 25:23; just as activities in volume and value terms were mixed, as volume dropped by 25% lower to 153.64m shares, as against the previous day’s 204.65m units, while value rose by 33% to N2.44bn compared to Tuesday’s N1.84bn. Volume was boosted, nonetheless by trades in UACN, Zenith Bank, Fidelity Bank, Zenith Bank,Transcorp and Access Bank.

Seplat and MRS Oil were the best performing stocks, after gaining 10% each to close at N682 and N12.10 per share respectively on improving Q1 numbers and interim dividend of 0.025 cent, as well as market forces.  On the flip side, Airtel Africa and C & I Leasing also lost 10% each, closing at N837 and N4.50 per share, on the back of the low dividend payout and yields in the face of high inflation. 

Market Outlook

We expect the losing momentum on profit taking and selloffs to slow down, in the midst of Q1 GDP expectation and outcome of next week’s MPC meeting, despite the rising infection rate of the novel coronavirus across the globe and the high yields in the fixed income market. We also expect the ongoing vaccination to support global and domestic economic recovery that will support the market and give direction. The banking sector and others remains attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

Also, the market just started a new downtrend as it trades below the 14 and 20-Day Moving Average. Note that the market may discount the political and insecurity challenges headlines, ahead of half-year earnings reports.

However, the pullbacks offer bargain hunters and income investors fresh opportunities to reposition in high dividend yields and undervalued stocks, while looking out for quarterly numbers that would support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.

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. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by Q1 earnings reports and expected march full year audited accounts.

The NGX’s index action and indicators are heading in the same direction   on a low traded volume and mixed sentiments in the midst of rising yield in bond and TB.

Also, 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 new year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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