Profit Taking Ahead, As Investors React To TB Primary Market Auction Outcome, Await Tier-1 Banks’ Earnings

Market Update for August 23

It was a mixed session on the Nigerian Exchange at the midweek as projected, just as the benchmark NGX All-Share index inched up due to continued buying interest in consumer goods, insurance and transcorp group shares. The broader market gain was muted by cautious trading due to the high rate and yield at the last TB primary market auction that jumped to 5.19%, 8% and 13.97% respectively, for the 91, 182 and 364-day tenors in the midst of increased liquidity in the system resulting from the almost N1tr FAAC allocation shared by the three tiers of government for the month of July. There was also the maturity of some bonds this week, leading to N1.5 trillion oversubscription in the primary bonds market. This liquidity in one way or the other will find its way to the equity space as market players reposition their portfolios to hedge against inflation rate of 24.1% already, which is still rising due to increasing inflation pressure from the ongoing economic reforms.
The current state of the market and economy calls for cautious trading in the absence of positive news, as first-tier banks continued to notify the exchange and investors of likely delay in their audited half-year earnings reports that are expected to come with interim dividends. Smart traders and discerning investors are taking advantage of the market consolidation and new uptrend, after forming a descending triangle and flag to breakout the resistance level of 65,352.70 basis points on a relatively low traded volume while supporting a continuation of trend or reversal, which need confirmation as the market opens today. It is the time to buy into valued stocks with strong fundamentals, as the market looks forward to a favourable news that will trigger yet another round of buying interests. Also noteworthy is the mixed outlook in the fixed income market, amidst portfolio repositioning and sector rotation on the strength of company earnings’ power.
These situations are to further guide the ongoing portfolio repositioning ahead of first-tier banks’ half-year earnings reports. We know that the banking industry is a net beneficiary of foreign exchange revaluation gains that should support higher interim dividend payouts. So far, Accesscorp, Zenith Bank, UBA and Stanbic IBTC notified the exchange of a likely delay in the submission of their audited half-year results, even as all eyes are on the audited full-year financials of PZ, Flour Mills and Honeywell Flour for the periods ended May and March 2023 respectively.
Volatility is likely to continue due to the changing economic fundamentals, and government reforms that are driving the reset in financial market and trading environment. It should be taken against the backdrop of August being a very dicey month when eyes should be kept on the chart, trend, sentiment and volume at all times, using multiple time frame analyses to catch short, medium and long term buying breakouts or sell breakdowns. All these are already impacting prices of equities in the face of the recent rate hike that made fixed income instruments attractive for risk averse investors, just as institutional investors continue digesting these numbers in the midst of rising inflation and opportunities within the equity space to hedge against its surging pressure.
The NGX index’s action is currently trading above the 65,000 basis points, ‘T line’ and 50-day moving average, attracting bargain hunters to position in fundamentally sound medium and low cap stocks amidst digesting of scorecards of many companies, assigning of portfolios to the cabinet ministers. This is besides the $3bn loan to support FX float in the exchange market. It is therefore time to use technical tools, if you have been ignoring charts and fighting the trends, it is your chance to step up your game. It is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time, as we look forward to a mixed outing and intermittent profit taking, since policy factors that pushed the market up are shaking, as market wait for favorable news and statements from the minsters.
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Oil price oscillation continued, pulling back to trade at $83.19 per barrel in the midst of weak global demand and contracting global economy as revealed by PMI in the face of second wave of inflation. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Midweek’s trading opened in the upside and was sustained throughout the day, despite oscillating on profit taking and buying interests across all kind of stocks. This situation pushed the Index to an intraday high of 65,567.61 basis points from its lows of 65,416.761bps, before closing slightly above the opening points at 65,492.92bps.
Market technicals were negative and mixed with a higher volume traded when compared to the previous session in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 50% buy position and 50% sell volume. The total transaction volume index stood at 0.68 points, just as the momentum behind the day’s performance was strong, with Money Flow Index reading 70.33pts, from the previous day’s 70.91pts, indicating that funds left the market, despite closing marginally in green.
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Index and Market Caps
At the close of midweek’s trading, the composite NGX All-Share index inched 4.25bps up, closing at 65,492.92bps, from its 65,488.67bps opening level, representing a 0.01% up. Market capitalization rose by N2.27billion to N35.85tr, from the previous day’s N35.84tr, which also represented a 0.01% value gain.
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Meanwhile, Wednesday’s marginal upturn was driven by position taking in the shares of Dangote Sugar, Transcorp Hotel, Vitafoam, Transcorp, Ucap, and Cornerstone, among others. This impacted mildly on Year-To-Date growth, which inched up to 27.79%, while Market Capitalization YTD gain went up to N6.73tr, representing a 28.41% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as NGX Energy and Banking closed lower by 1.66% and 0.68% respectively, while the NGX Consumer Goods led the advancers after gaming 0.40 %, followed by Insurance with 0.53%. Just as NGX Industrial goods closed flat.
Market breadth was negative as losers outpaced gainers in the ratio of 26:22, while transactions in volume and value were mixed after stockbrokers transacted 348.326m shares worth N4.05bn, driven by trades in Transcorp, Universal Insurance, Dangote Sugar, Fidelity Bank and CHI Plc.
ABC Transport and Thomas Watt were the best performing stocks, gaining 9.62% and 9.30% respectively, closing at N0.57 and N1.41per share each, on market forces. On the flip side, Conoil and Daar Communication lost 10% and 9.38%, closing at N99.00 and N0.29 per share, purely on the back of selloffs.

Market Outlook
We expect profit taking as market reacts to outcome of TB primary market auction as rates jumped up in the midst of bargain hunting and portfolio repositioning ahead of first tier banks earnings reports expectation and sector rotation persists.
However, pullbacks are creating buying opportunities amidst economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction eventually.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605