NGSE Index Slides Again On Liquidity Concerns, Portfolio Realignments

Market Update for March 15

The nation’s stock market maintained its downtrend on Monday, opening the week on a negative note, as the composite All-Share index closed lower, extending to three consecutive sessions of decline on a low traded volume and almost flat breadth.

The index was dragged down by selloffs in consumer goods and banking stocks, while investors make sector rotation out of some assets, with players hunting for sectors and stocks capable of outperforming the NSE’s benchmark index, even if it means taking more risk.

Under the prevailing market environment where liquidity and sentiment are changing, small and medium cap stocks become better just because they offer more opportunities.

Meanwhile, low priced stocks have dominated the gainers chart on weekly and daily basis, signaling investors’ interests in small and medium caps with strong fundamentals and high dividend yields, at a time inflation rate is on a steady increase. This has been fueled by government’s failure and/or refusal over the years to fix the nation’s comatose refineries that, nonetheless, continue to incur heavy unexplainable losses, while remaining a drain pipe in dwindling national revenue. This situation has been further worsened for citizens who are grappling with continued increases in electricity tariff and the age-long challenge of decayed national infrastructure, especially roads.

Nonetheless, larger capital gains and yields are required to outrun inflation in the short term, following which the equity market remains the right investment vehicle today, despite the rising yields in the fixed income market. This is especially true during this earnings season peak with offer of dividend payment and reward for investors. Zenith Bank, for example, is having a dividend yield of 11.25% in less than 4 weeks of announcing its 2020 full-year numbers.

The market is currently trading below the 39,000 basis points support level, a sign of volatility towards the next one that has been sported around 38,464.00bps. Should the index break this point, the next visible support is far below at 34,396.3bps, unless there is positive news or favourable policies capable of knee-jerking the market, while boosting market liquidity and sentiments. 

Investdata notes that technically, the ongoing negative move is best described as a market correction, even as the consistent downtrend could be linked to the sharp rally recorded in 2020, ahead of the full-year earnings season and Q1 numbers, coupled with favourable and positive economic indices. Market rebound can coexist with the uptrend in fixed income yields, following which we advise investors to play dividend stocks for reduced investment risk around the market.

Meanwhile Monday’s trading opened slightly on the downside and oscillated on buying interests in low priced, medium and dividend-paying stocks, and selloffs in high cap stocks.  This situation pushed the NSE’s index to an intraday low of 38,528.55 basis points from its highs of 38,653.42bps, before closing at 38,561.84bps.

Market technicals were weak and mixed, with volume traded lower than previous day’s in the midst of breadth that favoured the bears on a selling pressure as revealed by Investdata’s Sentiments Report showing 27% ‘buy’ volume and 73% ‘sell’ position. Total transaction volume index stood at 0.40 points, just as energy  behind the day’s performance remained weak, with Money Flow Index looking up slightly at 25.71pts, from the previous day’s 24.81pts, indicating that some funds entered the market, despite closing lower.

Index and Market Caps

The key performance index, at the end of Monday’s trading shed 86.46bps, closing at 38,561.84bps after opening at 38,648.48bps, representing a 0.20% decline. Similarly, market capitalization shed N45.34bn, closing at N20.18tr, from previous day’s N20.20tr, which also represented 0.20% value loss.

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Monday’s downturn was driven by selloffs in Nigerian Breweries, International Breweries, Guinness Nigeria, PZ Cussons, Dangote Sugar Refinery, Zenith Bank, and United Capital, among others. This impacted negatively on Year-To-Date loss which rose to 4.24%, just as market capitalization loss ballooned to N1.15tr, or 4.01% below its opening value for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NSE Insurance and Energy index closed 1.98% and 0.66% higher respectively, while the NSE Consumer goods index led the decliners, after losing 1.52%. They were followed by Banking with 1.01% lower.

Market breadth turned negative, as decliners outnumbered advancers in the ratio of 18:17; just as activities in volume and value terms dropped, as stockbrokers traded 184.53m shares worth N2.52bn. The day’s volume was driven by transactions in FBNH, Notore Chemicals, Fidelity Bank, Sovereign TRUST Insurance and Transcorp

The best performing stocks for the session were Coronation Insurance and NNFM, which gained 10% and 9.73% respectively, closing at N0.55 and N6.20 per share respectively on market forces and earnings expectations. On the flip side, Regency Assurance and Livestock lost 9.09% and 8.50% respectively, closing at N0.30 and N1.83 per share, on  profit taking.

Market Outlook

We expect the mixed trend to continue as more corporate earnings hit the market in the face of rising fixed income market yields, oil prices and high dividend yields during this earnings season. Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition, while more companies release their full-year numbers to support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, until the next MPC meeting in March.

The NSE’s index action and indicators are in divergence on a low traded volume and positive buying sentiments.

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