Profit Taking Yet, Ahead of Earnings Inflow, Dividend, Amid Positioning On Low Valuation

Market Update for March 20

Profit taking persisted on the Nigerian Exchange at the midweek as bearish sentiments continued on a low traded volume and positive market breadth in the face of selloffs in banking stocks and others that pushed the composite NGX All-Share index lower.

It was a mixed sectoral performance as buying interests and profit booking were witnessed in some major sectors of the market in the midst of continued absence of corporate earnings in the market to support the changing fundamentals and give direction. At the end of midweek’s trading more  insurance companies continued to notify the exchange of the delay in filing of their 2023 financials, due to the introduction of  IFRS 17 accounting standards by the regulator requiring changes in the disclosures methods and will take time to do adjustment. On the other hand, the apex bank has delay the approval of banks results, which is already affecting investor’s sentiments and confidence in the market. Even as all eyes are still on the audited accounts of banks, ahead of next week policy meeting.

Market players continue portfolio repositioning even as the market extends its distribution phase with three black crows reversal chart pattern in a correcting market. 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 that reflects a disconnection between the fiscal and monetary perspectives.

The latest macroeconomic data has showed inflation at its all-time high, interest rate at the highest and national output slowing down, an indication of late contraction of an economy. The CBN, through its monetary policy, usually moves to stabilize prices, improve economic activities and manage government flows, but the opposite is the case today. It does seem that the MPC has sacrificed the economy on the altar of attracting foreign inflows for improved foreign exchange supply that will help address FX challenges, as CBN has clear all the FX backlog according to them and also the nation external reserve looking up after many months in decline. Let hope this will support productivity and attract foreign investors.

Quoted companies on the NGX have continued announce their board meetings to approve their 2023 audited financials. The latest are UACN and Nestle among others. Airtel Africa continued its share buyback activities updates, while NEM, Guinea Insurance and Veritas Kapital Assurance informed the market of their delay in filing 2023 audited report and Q1 2024 results, just as Accesscorp notified the market of proposed acquisition national bank of Kenya limited, while FBN Holdings appoints non-executive directors.  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 with 3 black crows chart pattern that signaled continuation of profit taking after bearish hammer candlesticks formation revealed reversal of trend, as momentum indicators were mixed to signal relatively strength in the market, as the ADX inched up at 35.74, while RSI and Money Flow Index are mixed to read 64.05 and 73.04 points against the previous session 65.76 and 69.99 points respectively.  As money flow index looks up to indicate funds flowing into equity space and RSI looking down to revealed weakness in trend and market, traders should watch out and trade with caution after the index had formed a top pattern and momentum is relatively weaken. Also, trading volume pattern remained mixed, to suggests rekindled position taking in some sectors and profit taking in the face of others investment windows returns remain below inflation as Naira continues to deprecate.

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 at midweek slide to continue its oscillation, as it trades at $85.95 per barrel in the midst of Fed rate decision and stronger dollar, 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.

Midweek’s trading started in the red and oscillated for the rest of the session, on profit taking hitting some stocks, while buying interest continue in some stocks. This situation pushed the NGX’s index to an intraday low of 104,212.90bps from its highs of 104,553.30bps, before closing below its opening figure at 104,256.8bps.

Trade metrics for the session were weak and mixed, as volume was lower 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 13% buy position and 87% sell volume. The total transaction volume index stood at 0.86 points, just as impetus behind the day’s performance was relatively strong as Money Flow Index is looking up at 73.04pts, from the previous day’s 69.99pts, indicating that funds entered the market, despite closing in red.

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 Index and Market Caps

The NGX All-Share Index at the end of the trading shed 296.50bps, closing at 104,256.81bps after opening at 104,553.31bps, representing a 0.28% decline, just as market capitalization fell by N167.65bn, closing at N58.95tr from the previous day’s N59.12tr, which also represented a 0.28% depreciation value.

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The downturn was driven by selloffs and profit taking in FBNH, Transcorp, Vitafoam, Zenith Bank, Berger Paints, ETI and TIP among others, which impacted negatively on Year-To-Date gain which reduced to 39.43%. Market capitalization YTD gain stood at N14.35 trillion, representing 43.20% above its opening level for the year.

Mixed Sector Indices

The sectoral performance indexes were mixed, as NGX Banking closed lower with 1.79%, while NGX Insurance led the advancers after gaining 2.09%, followed by Energy  and Consumer goods with 0.24% and 0.14% respectively. Just as NGX Industrial goods finished flat.

Market breadth was positive as gainers outnumbered loser in the ratio of 29:23, while activities in volume and value were down after stockbrokers had traded 298.65m shares worth N6.84bn. Volume was driven by trades in FBNH, UBA, Transcorp, Fidelity Bank and Accesscorp.

NEM and CWG were the best performing stocks, gaining 10% each closing at N8.80 and N6.05per share respectively on earnings expectation and market forces. On the flip side, NSL Tech and FBNH lost 10% and 9.90% respectively, closing at N0.54 and N39.60per share, purely on selloffs and profit taking.

 Market Outlook

We expect a mixed sentiment and profit taking to continue as players await the release of more corporate earnings with dividend possibility ahead of next MPC meeting, while 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