Expect Mixed Trend As Bargain Hunters Reposition Ahead Of Q2 Earnings

Market Update for July 8

Profit booking resurfaced on the Nigerian Exchange Thursday amidst a volatile and mixed session, halting the positive sentiment and fourth successive session of bull transition as traders cashed out their gains from the recent rally.

The pullback witnessed during the session was linked to profit-taking in blue-chip stocks, especially in banking and consumer goods sectors after the indexes have recently broken out of the consolidation region ahead of earnings expectation. The slowdown in momentum or correction has created opportunities, however, for discerning investors to reposition in interim dividend paying stocks.

Despite, slow and weak economic recovery in the Nigerian economy today, with stagflation prevailing in the short supply-side and rising insecurity that had made prices of goods and services double in the market, there are sectors economically benefiting along which investors are expected to realign their positioning.

There is no need to panic at this point because profit taking is an integral part of stock market dynamics anytime, to drive oscillation that creates room for entry and exit. So Investors and traders should not be carried away with any rally or rebound, but be guided by their investment objectives, while taking profit immediately reasonable profit targets are met (say 15-20%) while keeping an eye on the preset stop-loss.

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Meanwhile, Thursday’s trading started on the downside and oscillated to sustain the negative trend on a sell pressure and profit-taking in blue-chip companies and low priced stocks that pushed the NGX index to an intraday low of 38,425.98 basis points from its highs of 38,501.31bps on a high traded volume.

Market technicals were weak and mixed, with volume traded lower than the previous day’s, in the midst of breadth favouring bears on mixed sentiments as revealed by Investdata’s Sentiments Report showing 60% ‘buy’ volume and 40% sell position. Total transaction volume index stood at 1.07 points, just as the impetus behind the day’s performance was relatively strong, as seen in the 53.18pts Money Flow Index, compared to the previous day’s 60.65pts, indicating that funds left the market.

Index and Market Caps

At the end of Thursday’s trading, the key performance index shed 31.44 basis points, closing at 38,469.871bps, from an opening level of 38,501.31bps, representing a 0.08% drop, just as market capitalization fell by N26.68bn, closing at N20.04tr, from its opening value of N20.07tr, representing a 0.08% value loss.  Also, during the session, the share price of Fidson Healthcare was adjusted for a dividend of 25 kobo declared by the board.

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The session’s downturn was due to price depreciation in stocks like Guaranty Trust Holding Company, Stanbic IBTC, UBA, Access Bank, Fidson Healthcare, Fidelity Bank, NASCON, United Capital, and Prestige Assurance, among others. This impacted mildly on Year-To-Date loss increasing to 4.47%, while the drop in market capitalization YTD inched up to N1.01tr, representing a 4.75% drop from its opening value for the year.

Mixed Sector Indices

Performance indexes across the sectors were mixed, as NGX Banking and Consumer Goods lost 0.98% and 0.14% respectively, while NGX Oil/Gas index led the advancers after gaining 1.21%, followed by Insurance and Industrial goods with 0.14% and 0.04% higher respectively.

Market breadth turned negative as losers outnumbered gainers in the ratio of 16:13, while activities in volume and value terms were mixed after traders crossed 238.24m shares worth N2.58bn. Volume was driven by trades in Transcorp, Courtville Business Solution, Zenith Bank, Fidelity Bank, and Chams.

NEM Insurance and Courtvill Business Solution were the best-performing stocks, gaining 10% and 9.52%, closing at N2.20 and N0.23 per share respectively on earnings expectations and market forces.  On the flipside, Prestige Assurance s and Pharm-Deko lost 10% and 9.70% respectively, closing at N0.45 and N1.21per share, on selloffs.

Market Outlook

We expect a mixed trend, on profit-taking and repositioning for half-year earnings reporting season kicking off any time soon after forming a wave that supports an uptrend as bargain hunters take advantage of pullbacks to reposition ahead of Q2 numbers. It is noteworthy that oil price continues its recovery at the international market, even as corporate actions and interim dividend possibilities around the corner. 

We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $73pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support the global and domestic economic recovery that will enhance the market and give direction.

The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

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 ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer a negative real rate of return due to the galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in the coming weeks.

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Ambrose Omordion

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