Profit-Taking, Cautious Trading Ahead, As Investors Digest Latest MPC Rate Hike, Earnings Inflow

Market Update for March 26

Tuesday’s trading activities on the Nigerian Exchange extended its negative outing a second consecutive session, amid profit taking and selloffs in highly priced stocks and some blue-chips. This weighed on the benchmark NGX All-Share index, forcing it to close lower on an above average traded volume and positive market internals, after the Central Bank of Nigeria’s Monetary Policy Committee voted for yet another rate hike, the second in two months. The MPC raised the Monetary Policy Rate 200 basis points to 24.75% from 22.75% in February as it moves to tame inflation, while making cost of borrowing, especially for manufacturers, SMEs and agric sector players prohibitive. Meanwhile, investors and traders are looking forward to more corporate earnings inflow and dividend announcements, as filing of audited results for December 31, year-end entered its official deadline, except for the companies that had notified NGX of late submission before now.  We expect that the state of these earnings reports and reactions to the latest rates hike will shape the market going forward into Q2.

During the session Total Energies and Multiverse Mining released their audited account for the period ended December 31, 2023, with mixed numbers. Total’s line was up by 32% to N635.95bn, while profit fell 20% to N12.91bn, translating to earnings per share of N38.02 each from which the directors recommended a dividend of N25 per share. Also, the mining and exploration business numbers were up as revenue inched up by 9.2% to N658.3m, while bottom line rose 40.2% to N265.9m, which produced EPS of 62 kobo with the board offering 5 kobo dividend. The market is likely to react to these scorecards as trading opens at the midweek.

Sector rotation and portfolio rebalancing are expected to continue in the face of quarter-end window dressing by fund managers and others, even as market ranges, remaining in its distribution phase with a top reversal chart pattern to signal correction and pullbacks. Although, we see government and its economic team trying to return the nation’s economy to the path of recovery, even with the continued mismatch of policies and implementation style that reflects a disconnection between the fiscal and monetary perspectives. It does seem that the MPC has sacrificed the economy on the altar of attracting foreign inflows with the increasing interest rate for improved foreign exchange supply that will help address FX challenges and checkmate inflation, as the CBN says it has cleared all genuine FX backlogs, which is why the Naira has started appreciating, just as external reserves is looking up after many months of decline. We can only hope that this will support productivity and attract foreign investors.

More companies on the Exchange continue announcing board meetings to approve their 2023 audited financials and unaudited Q1 2024 reports. The latest is GTCO among others, while Airtel Africa updates the market on insiders dealing and  ongoing share buyback. Therefore, investors should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle.

Technically, the NGX index’s action is still relatively strong as bearish sentiment prevailed as revealed by candlesticks formation, as momentum indicators revealed change in strength to signal weakness in the market, as ADX slide down at 36.20, while RSI and Money Flow Index are looking down to read 60.90 and 68.35 points against the previous session 62.09 and 75.91 points respectively.  These indicates change in trend, market players should watch out and trade with caution after the index had formed a top pattern and momentum is becoming weak. Also, trading volume pattern remained mixed, to suggests wait and see in some sectors and profit taking in the face of others investment windows returns remain below inflation as Naira continues to look up in recent days.

To navigate the rest of the quarter and beyond profitably using fundamental and technical analysis to run, join investdata live sessions at noon every Monday, Wednesday and Friday trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the oscillating volume of transaction witnessed in recent time, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.

Oil price pulled back on Tuesday to continue its oscillation, as it trades at $86.25 per barrel in the midst of Russia reducing its production on attack on refinery and ceasefire talk in Gaza shaking, as tightening supply as a result of rising geopolitical tension across the globe remained a major threat to many economies and the commodity market. Also, OPEC left production cuts unchanged and other factors that impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement that drive volatility. As middle East conflict and war in Ukraine last.

Meanwhile, Tuesday’s trading opened slightly in the green but pulled back at midday to oscillate for the rest of the session, on profit taking in blue companies and buying interest in some stocks. This situation pushed the NGX’s index to an intraday low of 103,933.87bps from its highs of 104,247.46bps, before closing below its opening figure at 103,952.50bps.

Market technicals for the session were negative and weak, as volume was higher compared to the previous session in the midst of breadth favoring the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 6% buy position and 94% sell volume. The total transaction volume index stood at 1.06 points, just as energy behind the day’s performance was relatively strong as Money Flow Index is looking down at 68.35pts, from the previous day’s 75.91pts, indicating that funds left the market.

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Index and Market Caps

The NGX All-Share Index, at the end of Tuesday shed 183.88bps, closing at 103,952.47bps after opening at 104,136.35bps, representing a 0.18% drop, just as market capitalization fell by N103.97bn, closing at N58.76tr from the previous day’s N58.88tr, which also represented a 0.18% value loss.

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The session downturn was driven by profit taking in the shares of MTNN, Accesscorp, Dangote Sugar, Transcorp, FBNH, Ikeja Hotel and UPDC among others, which impacted mildly on Year-To-Date gain which reduce to to 39.02%. Market capitalization YTD gain stood at N13.92 trillion, representing 40.86% above its opening level for the year.

Mixed Sector Indices

The sectoral performance indexes were mixed, as NGX Consumer and Industrial goods closed lower with 0.12% and 0.01% respectively, while NGX Insurance led the advancers after gaining 0.23%, followed by Banking with 0.07%. Just as NGX Energy finished flat.

Market breadth turned positive as gainer’s outnumbered losers in the ratio of 26:24, while activities in volume and value were down after players exchanged 306.82m shares worth N11.38bn. Volume was driven by trades in  GTCO, UBA, Zenith Bank, Accesscorp  and Fidelity Bank.

Abbey Building and Consolidated Hallmark Insurance Plc were the best performing stocks, gaining 10% and 9.92% closing at N2.42 and N1.44per share respectively on market forces. On the flip side, UDPC and Ucap lost 9.87% and 8.75% respectively, closing at N1.37 and N21.90 per share, purely on profit taking.

Market Outlook

We expect a mixed sentiment and profit taking to continue as players  digest outcome of MPC and release of more corporate earnings with dividend possibility. As investors take advantage of low valuation to position and rebalancing portfolio.

This is amid the volatility and pullbacks that add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

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CRO|Investdata Consulting Ltd