Sentiments May Linger, As Investors Digest Impact Of MPC Rate Hike, Earnings Inflow

Market Update for July 25

The benchmark All-Share index of the Nigerian Exchange extended its winning streak on Tuesday, in the midst of a low traded volume and slightly positive market breadth driven by price appreciation of highly priced stocks like Seplat, MTNN and Geregu Power, among others. On Tuesday also, members of the Central Bank of Nigeria’s Monetary Policy Committee, at the end of their two-day meeting, again extended its Monetary Policy Rate hike cycle for the eight consecutive time. This time, by 25 basis points to 18.75%, from 18.5%, thereby further increasing the cost of borrowing for private sector operators. This is another plus for the banking industry, but a minus for the economy, as it is likely slowdown equity prices in the immediate-term as rate volatility continues across the globe.
The strong buying momentum continued, despite the further tightening at the end of the policy meeting, and mixed performance witnessed during the trading session as profit taking hit some manufacturing companies stocks in the face of portfolio repositioning, changing economic fundamentals and concerns. Already, all eyes are on more corporate earnings reports expected to hit the market any moment from now as the statutory deadline for submission draws even closer. Market players are also betting on the expected half year results of high profile companies.
At the end of Tuesday’s trading, Skyway Aviation Handling Company released a positive half-year earnings reports showing an impressive performance, with top and bottom lines rising by 31.16% and 277.42% respectively. This was boosted by finance income. Despite the economic concerns, service sector earnings released so far look good and are giving investors an insight already into what to expect from others. Skyway’s EPS leaped to 86 kobo, against the 23 kobo posted in the same period of 2022. Also, directors of NGXGroup, at the end of their board meeting on Tuesday, joined the league of companies offering interim dividends by recommending 25 kobo payment for the half year, the first since its demutualization.
The expected release of more quarterly earnings reports is expected to drive increased volatility, especially rotation and portfolio reshuffling, especially in value-oriented sectors. This is against the backdrop of an environment where reform policies are driving hyperinflationary pressure in the face of an already heated economy and headwinds ranging from rising inflation, mostly driven the subsidy removal of petrol, exchange rate volatility, a high interest rate regime and insecurity, among others.
The NGX’s index action on Tuesday closed higher and extended the markup phase on buying sentiment to test the market’s new all-time high of 66,017.90 points, in the midst of profit taking in some insurance, and consumer goods stocks, among others. At this time, it is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. This is despite the changing market structure as a result of the gradual return of foreign portfolio investors, even as we look forward to a mixed outing and intermittent profit taking, since environmental factors that pushed the market to this level remain unchanged so far.
We also note that the earnings reporting season will reveal the state of corporate earnings power and others, which would expectedly be the game changer as we go further into the quarter. Already, all eyes are on the expected appointment of economic managers and minsters by this new government, a situation that will determine the rating of this new administration. More quoted companies, on Tuesday, notified the exchange and investors of insider dealings in their stocks, their closed periods and board meeting dates to approve the half-year financials.
Technically, the market continued to trade above the T-line, 50-Day Simple Moving Average and 100DMA on the daily and weekly chart in the midst of government economic and financial market reforms. This calls for a change in trading strategies and buying into value companies, amid the possibility of profit taking and correction any time. As such, technical traders and discerning investors must be guided, because higher prices will lead to lower dividend yields, even when market Price to Earnings Ratio is relatively low. It however provides better opportunities for investors to hedge against inflation even when fixed income market yields look attractive and remain mixed in the face of high inflation.
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Oil price oscillation continued, extendinh its gains to trade at its three-month high of $83.64.per barrel in the midst of expected stimulus by China, output cut and expected rate hike by fed, despite the seeming inflation cooling gradually across many economies. 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.
Tuesday’s trading started slightly in the downside before rebounding at midday on buying interests in blue chip stocks and others that pushed the Index to an intraday high of 66,017.90bps, from its lows of 65,072.80bps, before closing sharply above it opening points at 66,988.30bps.
Market technicals were positive and mixed with a lower volume traded when compared to the previous session in the midst of breadth favoring the bulls on a buying sentiment as revealed by Investdata Sentiments Report showing 97% buy position and 3% sell volume. The total transaction volume index stood at 0.53 points, just as the impetus behind the day’s performance was strong, with Money Flow Index reading 85.26pts, from the previous day’s 85.47pts, indicating that funds entering the market was flat.
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Index and Market Caps
At the end of Tuesday’s trading, the composite NGXASI gained 720.53 basis points, closing at 65,988.81bps, from its 65,268.28bps opening level, representing a 1.11% growth. Market capitalization also rose by N392.3 billion to N35.90tr, from the previous day’s N35.54tr, which also represented a 1,11% value gain.
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Meanwhile, Tuesday’s upturn was driven by position taking in shares of Seplat, Unilever, NTNN, Geregu, Zenith Bank, UBA, GTCO, Dangote Sugar, CHI Plc, Accesscorp, and Sahco, among others. This impacted positively on Year-To-Date growth, which increased to 27.35%, while Market Capitalization YTD gain improved to N7.68tr, representing a 28.76% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Energy and Banking closed 3,34% and 0.45% higherbrespectively, while the NGX Insurance led the decliners after losing 0.06%, followed by Consumer and Industrial goods with 0.06% and 0.03% respectively.
Market breadth was almost at par, as gainers equaled losers in the ratio of 32:31, while transactions in volume and value were down after investors exchanged 553.5m shares worth N7.4bn, driven by trades in Japaul Gold, GTCO, UBA, Zenith Bank and Wapic.
Seplat and FTNCoca were the best performing stocks, gaining 10% each, closing at N1,539.60 and N2.24 per share respectively, on positive market forces and sentiment. On the flip side, Learn Africa and John Holt lost 10% each, closing at N3.69 and N2.44per share, purely on profit taking and selloffs.

Market Outlook
We expect mixed sentiments to continue as market digest MPC rate hike, expectation of more earnings released, bargain hunting and policy meeting outcome in the midst of profit taking, economic concerns and portfolio repositioning amidst supportive reforms of the government, just as more policy pronouncements and appointments would offer investment direction.
Also, more Q2 earnings reports are expected to confirm the real state of the company performance and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
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. Also looking at the trends and events across the globe and domestically.

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