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Marginal Rebound On NGSE, As Investors Keep Eyes On Q3 Earnings, Data



Market Update for October 13

By Investdata Analysts

NSE index rise, as window-dressing continues ahead of earnings season

Tuesday’s was a very volatile and mixed session on the Nigerian Stock Exchange (NSE), as buying interest in medium cap and growth stocks resurfaced to halt the profit taking that had been in motion for four trading sessions. The composite index closed marginally higher, resisting further decline on an above-average traded volume and improved demand for equities in expectation of more Q3 earnings reports.

The expected numbers are very important to every investors and analysts because company performance at this time will help in more accurate estimation or stock revaluation that would support the ongoing market recovery or pullback, where the numbers do not meet investors expectation.

As we have always advised, take position before the earnings start hitting the market, after determining your target exit price and stop-loss with the help of technical analysis tools. Also, you should understand the momentum and actions associated with earnings season. This is another opportunity to cash in, especially for those who have watched and studied the session on the video on “mastering earnings season for profitable trading and investing in any market situation,” at our last traders and investors summit.

The day’s trading started green and oscillated in the mid-morning to early afternoon on profit taking before retracing up due to repositioning in manufacturing stocks by investors. This pulled the benchmark index to an intraday high of 28,351.51 basis points, from a low of 28,299.61bps, before closing the day higher than it opened at 28,344.04bps.

Market technicals for the session were positive as volume traded was higher than the previous session, just as breadth favoured the bulls on improved buying sentiments, as revealed by Investdata’s Sentiment Report showing 86% ‘buy’ volume and 14% sell position.

Total transaction volume index stood at 1.54 points, just as energy behind the day’s performance remained strong, with Money Flow Index reading 79.58 points, improving on the previous day’s 78.60 points, an indication that funds entered some stocks.

Index and Market Caps

At the end of Tuesday trading, the key performance NSE All-Share index inched up marginally by 6.55bps, closing at 28,344.04bps after opening at 28,337.49bps, representing 0.02% rise. Market capitalization rose by N3.42bn to N14.81tr, which also represented 0.02% value gain.

The marginal upturn during the session resulted from renewed buying interests in stocks like Nigerian Breweries, Zenith Bank, and Stanbic IBTC, which impacted mildly on the index, with Year-To-Date gains at 5.60%. Market capitalization YTD gain slowed down to N1.51bn, or 14.36% above the year’s opening value.

Volatility, Profit Taking May Slowdown, Amidst Reversal Ahead Of Q3 Earnings

Bullish Sector Indices

All the sectorial performance indexes closed higher, except for NSE Banking that shed 1.13%, while the NSE Consumer Goods led the advancers, gaining 0.88%, followed by the Insurance with 0.34% up.

Market breadth turned positive as gainers outpaced losers in the ratio of 18:15, while transaction in volume and value terms improved by 45.14% and 23.65% respectively, as investors traded 535.83m shares worth N5.02bn, as against the previous 369.18m units valued at N4.06bn. Volume was boosted by trades in Regency Assurance, Guaranty Trust Bank, UBA, FBNH and Transcorp.

The best performing stocks were Eterna and International Breweries, which gained 9.8% and 9.6% respectively, closing at N4.38 and N4.70 each on market sentiments. On the flip side, eTranzact and Royal Exchange Assurance lost 9.8% and 7.4% respectively, closing at N2.12 and N0.25 respectively on profit taking.

Market Outlook

We expect this slight rebound and volatility to continue. However, we need to confirm trend in the next trading session, as candlestick formation pattern supports a reversal, ahead of the Q3 corporate earnings season and healthy inflow of funds due to prevailing low rates in money market. We also project inflation would continue its upward movement, with the rate in September projected to be in the region of 13.32%, thereby worsening the negative returns in many investment windows.

The mixed intraday movement is likely to persist this October in the midst of expected earnings, profit booking, as well as the mismatch in economic policies and negative macroeconomic indices. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation, negative Q2 GDP of 6.1% and unstable economic outlook for the rest of 2020 as government and its economic managers are going front and back with mismatch polices and implementation.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.

We see investors focusing on portfolio adjustment and rebalancing by targeting companies with strong potentials to grow their Q3 earnings and dividend on the strength of their earnings capacity as the year last quarter is at the corner.

Again, the current undervalue 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 for the rest of the year.

Volatility, Profit Taking May Slowdown, Amidst Reversal Ahead Of Q3 Earnings

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited

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