Mixed Trend Ahead, As Investors Await Key Q1 Earnings, Economic Data

Market Update for April 21

Nigeria’s equity market continued its gaining streak for the fourth day, a direct opposite of its global counterparts that had suffered losses on the back of the increasing number of coronavirus cases and fresh rounds of lockdowns to check the spread and strengthen control measures amidst incidences of vaccine shortages, in the midst of the Q1 earnings season.

Midweek’s trading was volatile as investor confidence are being gradually rekindled as more companies release their quarterly scorecards to point direction for the new financial year and reveal economic performance for Q1, while looking forward to 2021 Q1 GDP.

The benchmark index NGXASI closed on a positive note, with transaction volume that is less than the average on a narrow positive breadth.

The positive sentiment and vibration around the stock market continued at the midweek as revealed by the money flow index and the sentiment report, despite the mixed numbers released so far. For example, the 2021Q1 earnings report released by Guaranty Trust Bank came below market expectation, with earnings per share dropping from N1.70 in the corresponding period of 2020 to N1.55 representing a 9.03% decline.

We see the ongoing Q1 earnings season influencing the market, considering the undervalued state of some stocks with potential to outperform inflation, as well as yields in Treasury Bills and bonds, given that capital gains and dividend rewards that associated with stock market investing and trading.  Investdata expects equity market players to invest wisely, guided by set investment objectives, especially entry and exit strategies necessary to survive and profit from the expected new trend.

By so doing, should the Q1 earnings reports and corporate actions fail to impact and support recovery, a big rotation in sector trends should also guide you, going into the future, the second wave of covid 19, oscillating oil price, and profit-taking may slow down the current recovery as the market offers short-term trading opportunities.

Meanwhile, midweek trading opened on the upside and oscillated on increasing buying sentiment among the blue-chip stocks and low priced equities with growth potentials that pushed the composite index, to an intraday high of 39,138.66 basis points, from its lows of 38,975.34bps, and thereafter closed above its opening figure at 39,128.58bps.

The day’s market technicals were positive and mixed, with volume traded lower than the previous days in the midst of breadth favoring the bulls on a high buying sentiment as revealed by Investdata’s Sentiments Report showing 94% ‘buy’ volume and 6% sell position. The total transaction volume index stood at 0.73 points, just as the energy behind the day’s performance was relatively weak. Money Flow Index was looking up to 39.16pts, from the previous day’s 32.02pts, indicating that funds entered the market.

Index and Market Caps

The key performance index NGXASI, at the close of Wednesday’s trading, gained 112.76ps, closing at 39,128.58bps after opening at 39,015.58bps, representing a 0.29% growth, just as market capitalization rose by N59bn, closing at N20.48tr from an opening value of N20.42tr, which also represented 0.29% value gain. 

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Midweek’s upturn was sustained by buying interest in Conoil, Lafarge Africa, NNFM, Zenith Bank, Guaranty Trust Bank, Dangote Sugar, and UBA, among others. This impacted positively on the Year-To-Date loss, which reduced to 2.84 %, just as market capitalization loss dropped to N589.10bn or 2.74% below its opening value for the year.

Mixed Sector Indices

Performance indexes across the sectors were mixed, as the NSE Insurance and Consumer Goods dropped by 1.28% and 0.35% respectively, while the NSE Banking led the advancers after gaining 2.23%, followed by Industrial goods and Energy with 0.39% and 0.34% higher.

Market breadth was slightly positive, as advancers outnumbered decliners in the ratio of 22:21; with transactions in volume and value terms were down after stockbrokers traded 239.25m shares worth N1.66bn, compared to the previous day’s 339.02m units valued at N2.7bn. The day’s volume was boosted by trades in Access Bank, Fidelity Bank, Mutual Benefits, Guaranty Trust Bank, and Transcorp.

Conoil and Studio Press were the best-performing stocks, gaining 9.97% and 9.88% respectively, closing at N18.75 and N1.78 per share on market forces and earnings expectations. On the flip side, Guinness Nigeria and Portland Paints lost 9.89% and 9.85% respectively, closing at N28.7 and N2.38 per share, on profit-taking and selloffs

Market Outlook

We expect the mixed trend and profit-taking as Q1 corporate earnings continue to hit the market in the face of rising virus cases across the globe and high yields in fixed income space, while portfolio realignments continue ahead of such economic data as the 2021Q1 GDP report, PMI and others. Also, the market has moved out of its trading range, as index action broke out the psychological line of 39,000 to trade above the 14 and 20-Day Moving Average, even as the market may discount the prospects for high cap companies as well assome blue-chip stocks ahead of earnings season.

The pullbacks offer bargain hunters and income investors another opportunity to reposition in high dividend yields and undervalued stocks while looking out for quarterly numbers that would 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 a 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 2020 full numbers and expected 2021 Q1 earnings reports, until the next MPC meeting in May.

The NSE’s index action and indicators are heading in the same direction on a low traded volume and positive buying sentiments in the midst of rising yield in bonds and TB.

Also, the current undervalued 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 in the new year.

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