Volatility Ahead On Funds Inflow, As Investors Analyze Q3 Earnings

Market Update for November 3

At the end of Tuesday trading on the Nigerian Stock Exchange (NSE), the benchmark All-Share index closed higher, reversing the previous session’s loss on an increased buying interest in manufacturing stocks due to the improvement in Purchasing Managers Index for the month of October, despite the mixed earnings reports emanating from the sector. Many companies in the consumer and industrial goods sector have posted better than expected numbers regardless of the prevailing economic situation.

The index’s up and down movements in the new month is likely to continue with about N246.19bn OMO bills expected to mature on Thursday in the midst of dwindling oil prices, due to the second wave of lockdown due to the resurgence of COVID-19 case in Nigeria and other clime, just as the world awaits the outcome of the U.S general elections.

All eyes are now fixed on the scorecards of first-tier banks, with many investors and analysts analyzing numbers released so far, alongside the ongoing portfolio reshuffling ahead of the year-end and 2021 corporate actions. The third quarter earnings reports from the Agribusiness have been outstanding, especially from Presco, Okomu Oil and Livestock Feeds, while scorecard from Honeywell Flour came above average.

Meanwhile, the day’s trading opened on the upside and was sustained throughout the session, despite oscillating between midday to afternoon on demand for large and medium cap stocks that pushed the composite index to an intraday high of 30,735.45 basis points from its low of 30,408.13bps on a low traded volume.

Market technicals for the session were positive and mixed as volume traded was lower than the previous session in the midst ofpositive breadth andhigh buying pressure, as revealed by Investdata’s Sentiment Report showing 99% ‘buy’ volume and 1% sell position.

Total transaction volume index stood at 0.82 points, just as momentum behind the day’s performance remained strong, with Money Flow Index sliding to87.47 points, from the previous day’s 87.81 points, an indication that funds left some stocks, although the general market closed higher.

Index and Market Caps

The key performance index, on Tuesday gained 254.08bps to close at 30,733.47bps, representing 0.83% growth after opening at the 30,479.39bps. Similarly, market capitalization hit its highest since February 2018, rising by N132.8bn to N16.06tr, from opening value of N15.93tr, also representing a 0.83% appreciation in value.

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The uptrend was impacted by gains recorded in Dangote Cement, Chemical & Allied Products, Dangote Sugar, Vitafoam, Oando, United Capital, PZ Cussons, Coronation Insurance, and Honeywell Flour, among others. This raised Year-To-Date gain to 14.50%, while Market capitalization YTD gain climbed to N3.17tr, or 23.97% above the year’s opening value.

Mixed Sector Indices

The sectorial performance indexes were largely bullish, except for the NSE Banking and Consumer Goods that closed 0.48% and 0.13% lower respectively, while NSE Industrial Goods led the advancers after gaining 2.85%, followed by Oil/Gas and Insurance thatwere up by 0.62% and 0.33% respectively.

Market breadth turned positive as advancers outweighed decliners in the ratio of 24:18, while activity in volume and value terms were mixed as volume transacted dropped by 10.8% to 336.09m shares from the previous 376.65m units. While volume was driven by trades in Zenith Bank, FBNH, UBA, Fidelity Bank and Access Bank, transaction value improved marginally by 2.3% to N3.89 billion from Monday’s N3.8bn.

Coronation Insurance and ABC Transport were the best performing stocks, gaining 10% and 9.68% respectively, closing at N0.44 and N0.34 respectively, on market forces. On the flip side, NPF Microfinance and Custodian Investment lost 8.82% and 7.44% respectively, closingat N1.55 and N5.60 respectively on profit taking.

Market Outlook

We expect this volatility to continue, with the deadline for submission of earnings reports extended, as investors continue to analyze the Q3 numbers released so far and readjust their portfolios on the strength of sector and company’s performance. There was a reversal in direction at the end of trading as NSE index action and indicators consolidated, turning up to look the same direction on above average traded volume and positive buying sentiment.

Again, the current undervalue 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 for the rest of the year.

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