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NSE index soars, as investors abandon defensive stocks for growth, juicier dividend, returns

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By Investdata Analysts

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

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Market Update for October 5

The dynamics of low interest and a soaring inflation rate have continued to influence the flow of funds into equity assets, helping the benchmark index to closed higher, once again, on Monday as smart money and retail investors take position ahead of the Q3 earnings reporting season. These factors have sustained the positive outing for the 11th successive sessions of the bull-run on a very high traded volume and buying pressure.

The NSE index broke out the 27,000 psychological line on a very high volume, amidst positive sentiments signaling a continuation of trend and recovery, as traders and investors abandon defensive stocks for growth and dividend-paying equities likely to deliver better returns in the short and long-term.

The recent extension of wave three on the NSE index indicates an impressive performance of the market that has been supported by increased liquidity and buying interests. More companies continue to notify investors of their board meetings and closed period when directors approve their scorecards for the period ended September 30, 2020.

The following are what market technicals are saying about the NSE amidst the increasing optimism, while its performance Year-To-Date is turning positive:

  • A Bright Cloud chart pattern typically associated with a major breakout setup and a trend continuation.
  • Critical resistance levels on the NSE, as highlighted by the multiple technical analysis strategies are suggesting a range of 27,800.20 basis points to 32,596.50bps, which is now acting as major resistance levels.
  • If the NSE All-Share Index stays above the 27,000 level, then we interpret the recovery and trend as strong and healthy to support higher prices.

Consequently, the current market rally is likely to persist, despite the expected marginal pullback that will offer another opportunity to jump into high-flying and growth stocks which would drive the NSE’s V shape recovery as smart money enters the market. There are also the expected mixed Q3 earnings reports and negative economic data, given that market players are not going defensive at this point, considering the strong market momentum.

Meanwhile, Monday’s trading opened on the upside and was sustained throughout the session on increased demand for medium and high cap stocks, pushing the NSE’s index to an intraday high of 27,563.91 basis points, from its low of 26,985.77bps. It closed the day higher than it opened at 27,554.56bps, on positive breadth.

Market technicals for the day were positive and strong with higher volume traded than the previous session, amidst positive breadth and sentiment, as revealed by Investdata’s Sentiment Report showing 98% ‘buy’ position.

Total transaction volume index stood at 2.16 points, just as momentum behind the day’s performance remained strong, with Money Flow Index reading 85.40 points, from the previous day’s 84.09 points, an indication that funds are entering some stocks and the market.

Index and Market Caps

The composite NSEASI gained 586.79bps at the end of  Monday’s trading, closing at 27,554.56bps, after opening at 26,985.77bps, representing a 2.11% rise, just as market capitalization rose by N297.29bn to N14.4tr, after opening at N14.11tr, also representing a 2.11%  appreciation in value.

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Monday’s upturn was due to increased demand for stocks like MTNN, Airtel, Seplat, Guaranty Trust Bank, Zenith Bank, GSK, Presco, FBNH, Africa Prudential, Redstar, and Guinness Nigeria. This impacted positively on the index, as Year-To-Date gains increased to 2.65%, while market capitalization YTD gain improved to N1.51tr or 11.14% above the year’s opening value.

NGSE outlook positive, time to diversify portfolio long-term ahead of possible correction

Bullish Sector Indices

All the sectoral indexes were bullish, led by the NSE Banking with 3.37%, followed by the NSE Insurance’s 2.04% rise; while the Oil/Gas, Industrial and Consumer Goods climbed 1.88%, 0.38%, and 0.38% higher respectively.

Market breadth was positive with advancers outnumbering decliners in the ratio of 36:10, while activity in volume and value was up by 31.35% and 72.48% respectively, as investors traded 603.93m shares worth N7.42bn, as against the previous 459.79m units valued at N4.3bn. The day’s volume was driven by trades in Zenith Bank, Sterling Bank, UBA, Guaranty Trust Bank, and Transcorp.

GSK and Redstar Express were the best performing stocks of the session, as they gained 10% each, closing at N5.50 and N3.30 per share on low price attraction and earnings expectation. On the flip side, Tripple Gee and Oando lost 10% and 8.73% respectively, closing at N0.36 and N2.09 respectively on market forces and profit taking.

Market Outlook

We expect a pullback at any moment, but buying interests continue to increase in the midst of positioning ahead of Q3 corporate earnings season, despite the negative macroeconomic indices. This is given the further crash in money market rates, while inflation peaked at 13.22%, worsening the negative returns on many investment windows.

The mixed intraday movement is likely to persist this October in the midst of an expected profit booking, as well as the mismatch of 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.

stock performance for September

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited

info@investdataonline.com

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