Cautious equity investors, anticipate MPC’s outcome, amid portfolio realignments

Cautious equity investors, anticipate MPC’s outcome, amid portfolio realignments

• By Investdata Analysts

In recent days, the bulls and bears have battling for dominance on the Nigerian Stock Exchange, propeling the ongoing oscillation amidst the earnings reporting season’s peak and rising yields in the fixed income market.

The last full trading week of the March and first quarter started Monday on a positive note as investors expect more earnings reports, which coincides with the anxious wait for the outcome of the all-important Central Bank of Nigeria’s two-day Monetary Policy Committee meeting, which ends on Tuesday. This is besides the month and quarter-end window dressing of trading portfolios by fund managers, driven by a rekindled buying interest across the major the sectors. This was noticed, especially, in industrial goods stocks like BUA Cement, which climbed 6.02% up, pushing the NSE’s benchmark All-Share index higher on a low traded volume and wide positive breadth that signals a reversal of trend and support for strength.

The NSE’s index action has tried to resist further decline in several attempts, after sideways trending, and solidifying, helped by the probability of a market recovery, looking at the 50% Fibonacci retracement line and index action in the last five trading sessions.

Despite the cautious trading, the index rose on the back of safe bets by investors given the options open to the MPC members based on the mixed macroeconomic indices emanating from National Bureau of Statistics, among others.

Investdata believes the time has come for the government and policy makers to rethink the decision to further hike the price of petrol, at a time the populace is still struggling with the recent increase in power tariff, at a time the world is grappling with the impact of the Coronavirus pandemic and is gradually recovering.

The outcome of the MPC meeting, we expect, will play a very important role in determining the market’s trend, following which traders and investors should stay with fundamentally sound stocks. This is without prejudice to the fact that investors will respond sharply to unimpressive results from companies yet to present their scorecards, especially when dividend declared comes below expectation.

Meanwhile, Monday’s trading opened on the upside and was sustained through the session, despite oscillating on buying interests in high and medium capstocks, as well as profit taking in low priced equities. These pushed the composite index to an intraday high of 38,722.87 basis points from its low of 38,379.19bps, before closing above its opening point at 38,722.87bps.

Market technicals were positive and strong, with volume traded lower than previous day’s in the midst of breadth that favoured the bulls on positive sentiments as revealed by Investdata’s Sentiments Report showing 100% ‘buy’ volume. Total transaction volume index stood at 0.69 points, just as momentum behind the day’s performance remained weak, with Money Flow Index looking up sharply at 40.93pts, from the previous day’s 36.26pts, indicating that funds entered the market on renewed buying interest.

Index and Market Caps

At the close of Monday’s trading, the NSEASI gained 340.48bps, closing at 38,722.87bps after opening at 38,382.39bps, representing a 0.89% growth. Similarly, market capitalization rose by N177.99bn, closing at N20.26tr, from previous day’s N20.02tr, which also represented 0.89% value gain.

Monday’s upturn was impacted by the demand for stocks like BUA Cement, Stanbic IBTC, Julius Berger, UACN, Zenith Bank, United Capital, UBA, Access Bank, and Vitafoam, among others. This impacted positively on Year-To-Date loss, reducing it to 3.84%, just as market capitalization loss dropped to N796.77bn, or 3.78% below its opening value for the year.

Mixed Sector Indices

All sectorial indexes were up, except for Banking that closed marginally lower 0.01%, while the NSE Industrial goods index led the advancers after gaining 2.12%, followed by Insurance, Consumer goods and Energy with 0.44%, 0.29% and 0.14% respectively higher.

Market breadth turned positive, as advancers outpaced decliners in the ratio of 26:8; just as activities in volume and value terms were down after players exchanged 277.35m shares worth N3.05bn.

Julius Berger and Stanbic IBTC were the best performing stocks, gaining 10% each, after closing at N18.70 and N44.00 per share respectively on dividend and audited earnings expectation. On the flip side, Champion Breweries and Jaiz Bank lost 8.20% and 4.48% respectively, closing at N2.24 and N0.64per share, on market forces and 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, high dividend yields and outcome of MPC meeting during this earnings season and month/ quarter activities. Also, the pullbacks have offered bargain hunters and income investors another opportunity to reposition in high dividend yield and undervalued stocks , 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 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.