Nigerian stocks fell modestly after the Independence Day holiday. The NGX All-Share Index declined 0.16% to 250,808.27 points, market capitalisation shed ₦261.9 billion, while year-to-date return reduced to 61.17%.
Sustained profit-taking in large-cap stocks dragged market performance, as the stock indices posted losses in the top three laggards – FIDELITYBK (-9.91%), NGXGROUP (-6.85%) and FIRSTHOLDCO (-6.16%). The latest market sessions show signs of cooling. Profit-taking, sector rotation, and a slight contraction in weekly turnover indicate that institutional and retail investors are adopting a more conservative view.
However, the solid year-to-date outstanding performance and high double-digit returns over the year have led institutional investors to naturally start taking profits off names that experienced parabolic runs in September, such as a few of the big-cap banking stocks and industrials.
The index moved marginally ahead of the benchmark, driven by defensive/niche plays such as the NGX Insurance Index. On the other hand, the Banking (-1.33%) and Consumer Goods (-0.91%) indexes were under intense selling pressure.
Kanyi Daily reports that heavy underperformance or sluggish movements in bellwethers such as MTN Nigeria and Nigerian Exchange Group have weighed heavily on the Index. Large-cap banking counters like GTCO, Access Corp, ETI, and Zenith Bank and industrial & consumer goods stocks like BUACEMENT and Unilever have come under local pressure, dragging market capitalisation to the tune of hundreds of billions of Naira in recent trading sessions.
Liquidity has not entirely left the market; a rotation is currently taking place as more mid- and small-cap counters and a few stocks making new 52-week highs like Transcorp Hotels are getting buy sentiment. Total traded volume and total turnover value per week have come down significantly. This drop in transaction velocity hints at a traditional “wait-and-watch” mode of trading ahead of next week’s release of Q3 corporate earnings data. Investors are waiting for tangible fundamentals before investing in fresh capital.
The NGX All-Share Index also followed suit, giving back some of its strong week-on-week gains, which was to be expected as the index traded around the 250,800 level.
There is psychological overhead resistance near the current peak territory in the short term. The index must see heavy volume breakouts above it to kick-start the broader index again. Immediate downside support levels are in the offing. If large-cap counters fail to sustain their current consolidation range, it may give way to a further horizontal correction in the near term.
The advancer-decliner ratio has improved over recent weeks, indicating that the “broad-based rally” period has shifted toward more stock-by-stock trading. As of now, momentum is favouring aggressive small- to mid-cap stocks, such as some transport stocks, real estate, and mortgage companies receiving speculative bids.
A balanced approach as markets brush off the gains and move into Q3 earnings season involves identifying Q3 earnings plays by directing capital toward fundamentally strong companies with healthy cash flows, respectable debt-to-equity ratios and a long history of dividends. Accumulating positions in fundamentally strong tier-1 banks and consumer goods leaders at all dips, rather than chasing them on short-term rallies, is advisable. Historical data warns against overweighting overbought counters that experienced intense spikes in September; moving the portfolio to the defensive, such as insurance and stable-yield stocks, can help cope with near-term volatility.
