Mixed Trend, Profit Taking, Realignments, Amidst 2021Q1 Earnings Inflow

Market Update for April 20

The Nigerian equities’ market continued to rally Tuesday, on the back of the post-March 2021 Consumer Price Index that gave inflation at 18.17%, with the composite All-Share index closing higher on an above-average traded volume and increased buyinginterests in blue chip stocks. These expectedly extended the bull transition for third successive session, so far.   

The seeming positive sentiment and momentum around the equity space, despite the galloping inflation and yields in fixed income market, were attributed to bargain hunters taking advantage of the pullbacks and institutional investors repositioning their portfolios ahead of Q1 numbers that kicked off Monday, with Unilever and United Bank for Africa Plc releasing mixed numbers. UBA Plc was the earliest filer for this financial year, with numbers that reveal a strong take-off, as shown in its N1.04 Earnings Per Share, a pace Unilever Nigeria could not match, with its negative N0.09 earnings, despite growing top line by 43% to N19.43bn, from N13.33bn in 2020.

The expected earnings news is likely to influence the market with yield from some companies expected to outperform inflation, as well as yields in Treasury Bills and bonds, given that stock prices can swing 10% north or south daily, depending on market sentiments and direction. Consequently, players in the equity market should invest wisely, guided by set investment objectives, especially entry and exit strategies 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.

Tuesday’s trading started on the upside and was sustained throughout the session on buying interests in bellwether stocks and low priced equities that pushed the NGX index, to an intraday high of 39,026.75 basis points, breaking out the recent resistance level of 38,874.45bps, from its lows of 38,841.84bps, and thereafter closed above its opening figure at 39,015.58bps.

Market technicals for the day were positive and mixed, with volume traded lower than previous day’s in the midst of positive breadth on a high buying pressure as revealed by Investdata’s Sentiments Report showing 94% ‘buy’ volume and 6% sell position. Total transaction volume index stood at 1.03 points, just as momentum behind the day’s performance became relatively weak. Money Flow Index was down marginally to 32.02pts, from the previous day’s 35.15pts, indicating that funds left the market, despite the up market. 

Index and Market Caps

At the end of Tuesday’s trading, the benchmark index NGXASI gained 167.56ps, closing at 39,015.58bps after opening at 38,848.02bps, representing a 0.43% up, just as market capitalization rose byN87.69 billion, closing at N20.42 trillion from an opening value of N20.33 trillion, which also represented 0.43% appreciation in value. 

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The upturn was due to position taking in MTNN, Zenith Bank, Guaranty Trust Bank, Dangote Sugar, UBA, NEM, ETI, FBNH, International Breweries, Honeywell and PZ, among others. This impacted positively on Year-To-Date loss, which reduced to 3.12 %, just as market capitalization loss dropped to N754.28bn, or 3.64% below its opening value for the year.

Bullish Sector Indices

Performance indexes across the sectors were bullish, except for NSE Oil/Gas that closed 0.03% lower, while the NSE Banking led the advancers after gaining 1.73%, followed by Insurance and consumer l goods with 1.12% and 0.38% higher.

Market breadth turned positive, as advancers outnumbered decliners in the ratio of 24:12; with activities in volume and value dropping by 33.4% and 91.6% respectively, after investors exchanged 339.02m shares worth N2.7bn from the previous day’s 508.64m units valued at N32.1bn. The day’s volume was boosted by trades in Fidelity Bank, Zenith Bank, UACN, Guaranty Trust Bank and FBNH.

PZ and Honeywell were the best performing stocks during the session, after gaining 10% each, closing at N4.95 and N1.43 per share respectively on market forces and full year earnings expectation. On the flip side, Royal Exchange Assurance and Portland Paints lost 10% and 9.90% respectively, closing at N0.36 and N2.64 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, as 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 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 bond 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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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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