Domestic equity and its growth trajectory in last five months

The nation’s equity market in the last five months has recorded positive growth,despite slow down in the economic activities due to scarcity of fund, insecurity, political issues experiencing in the country. AMAKA IFEAKANDU looks at the factors contributed to the growth of the market in the last five months of 2023

Market performance

The nation’s equity market has recorded good performance in the first five months of the year, despite the insecurity problem, scarcity of fund on the new naira policy, and harsh operating environment.

The market which opened the year at N27.915 trillion appreciated by N2.451 trillion or 8.78 per cent to close at N30.366 trillion at the end of May.

The NGX index within the same period appreciated by 4418.22 basis points to 55769.28 point against 51251.06 points it opened for the year.

Available data showed that three out of the five past months closed in green.

An analysis of the transactions during the period showed that in January the market took positive direction, gaining N1.082 trillion, representing 3.88 per cent growth to N28.997 trillion against N27.915 trillion it closed in the previous year while the All Share index also up by 1987.61 basis points or 3.90 per cent to 53238.57 points
The market sustained upward trend in the month of February, growing by N1.403 trillion or 4.84 per cent to N30.400 trillion from N28.977 reported in the preceding month.

The NGX ASI appreciated by 2,569.59 basis points to 55806.26 points from 53238.67 traded the preceding month.

But trading activities in the month of March turned negative as the market slump by
N857 billion or 2.82 per cent to N29.543 trillion from N30.400 trillion reported in the comparative period of February while the index went down 1573.92 basis points or 2.82 per cent to 54413.12 points against 55806.26 recorded in the previous month.

The market sustained negative position in the month of April, declining by N984 billion representing 3.33 per cent to N28.533 trillion from N29.517 trillion in the previous month while index dropped by 1780.83 basis points to 52403.57 points from 54184.34 points traded previously.

In the month of May the market took upward direction, appreciating by N1.891 trillion, indicating an increase of 6.64 per cent to close at N30.366 trillion from N28.475 trillion it opened for the month while ASI also appreciated by 3472.80 basis points to 55769.28 points from 52296.48 points in the beginning of the month.

The growth in the market for the month is seen by some operators as a begining of good thing to come in the market. They have the opinion that upward trend in the month was a result of President Bola Ahmed Tinubu economic policy pronouncement which centred on removal of fuel subsidy, unification of exchange rate, reduction in interest rate, tackling inflation, review all anti-investment and multiple taxation policies and focus on infrastructure Development to create jobs.

Operators view

Reviewing the equity market trading activities within the period, managing Director, APT Securities and Fund Ltd, Malam Garba Kurfi said the performance in the Capital market in the passed five months ended in positive note with ASI closing with over 8 per cent being one of the best performance in Africa and emerging market.

He said the volume trading increase substantially to an average daily turn over of over N6 billion .

He said sudden growth recorded in the market has to do with the participation of the Institutional Investors especially PFAs that have increase their investment in order to hedge against inflation, adding that the retail Investors have followed the same direction.

He said the rising inflation to 22 per cent push Investors to look for Investment that hedging inflation.

He explained that the penny stocks look much better in the reviewing period as FTNCocoa gained 170 per cent the Chams gained 75 per cent , Ikeja Hotel gained 62 per cent while other stocks that are meeting new 52 week high were GTCO, Zenith, Dangote Sugar, Transcorp among others.

He said The implementation of the President Tinubu new policy especially effort in unifying Exchange rate, reduce interest rate, fight insecurity in the system and raise GDP to six per cent will go a long way to boost activities in the market
Making his own contribution, Chief Research Officer, Investdata Consulting Limited, Mr Ambrose Ormodion said that the market has been mixed in the last five months of the year.

He said that the good thing was that the market maintained positive sentiment despite the profit taking witnessed in the two months of the year-March and April but it rebounded in the month of May as a result of market factoring on high pleasant of dividend in the 2022 financial year.

In addition, he said the expectations of first quarter numbers that was released notwithstanding the economic slow down in the first quarter due to cash crush experiencing in the nation’s financial system and company result defiled the impact at the end of the day.

Ormodion said there were also the better-than-expected corporate earnings, higher dividend payouts and relatively improved liquidity as fixed incomes yields were not stable in the face of heightening inflation which supported buying interests in the market and flow of funds into the equity space.

He explained that the company results that came across the sector within the period were very impressive and supportive to the market, apart from industry sector like Dangote Cement, BuaCement and Wapco that had flat numbers and marginally declined. He said growth recorded in the other sectors such as banking sector, food beverage, oil and sector, insurance sector and telecommunication impacted positively in the market.

Ormodion stated that the high traded volume and positive sentiment during the month of May reflected the buying interests by majority shareholders and activities of institutional investors as they sought to hedge against inflation on mixed outlook for fixed income rates and yields. This according to him followed the fact that the first quarter performance of many quoted companies beat inflation rate, raising hopes of better earnings that will support price and payout at the end of the financial year, if government implement their policies that will drive the economy.

He said” given the outcome of the Monetary Policy Committee meeting in May, the prevailing mixed economic data and corporate earnings now looking up, we envisage a continuation of the big trend with more March year-end companies hitting the market with their audited earnings reports and mixed market performance in June.

He stated that for the month May kobo stocks, low and medium cap companies, especially in ICT companies topped the month’s best performers, as FTN Cocoa, Chams, Ikeja Hotel, MRS Oil and CWG that continue to enjoy buying interests and positive sentiment, while the market still expects the fourth quarter audited accounts results from others companies.

The stocks closed the month higher, after gaining 170 per cent, 75 per cent and 62.33 per cent 60.47 per cent and 60 per cent on their opening prices for the month respectively.

Expectation in 2rd half of 2023

Ormodion said that the global economy and market remain mixed and dicey as Ukraine war and other factors are driving gloomy economic outlook across the climates continue, with the World Bank recently downgrading its economic growth outlook based on the ongoing Russia and Ukraine conflict that had disruption supply chain.

In the domestic market, he said , the seeming economic recovery and mixed indicators are likely to continue in the new month as we expect more economic data and new developments from the new administration policy statement and agenda confirm the real state of the nation’s economy as implementation of the 2022 and 2023 national budget continues.

He said that this will be helped by the CBN’s continued intervention in critical sectors to boost productivity needed to create employment and support recovery in the face of rate hike and fuel subsidy removal by the government.

He pointed out that In June, it is expected that the May Consumer Price Index (CPI) will be released by the National Bureau of Statistics (NBS) and it would likely show that inflation is rising further; just as the Stanbic IBTC Purchasing Managers Index (PMI) reports for May is equally expected in this June.

He stated that the nation’s GDP of 2.31 per cent is still on a weak recovery mode to reflect the true state of the economy, adding that as corporate earnings reporting season has been extended to June and July for the few March, April and May year-end accounts, the fundamentals of these earnings and dividend declaration will support the ongoing positive outlook in market.

He noted that many stocks have this month as their qualification and mark down dates, a situation that will keep the market oscillating, while all eyes are on policy action of the government.

Ormodion pointed out that the way certain stocks and sectors are right now may lead many investors to believe that a breakdown trend is setting up, which could be the case but reversal is underway after correction.

He said that the month of June in recent years had recorded downtrends over the past five years, closing southward in four years and north in just one year with a slight gain.

In his explanation, he said the candlestick pattern that represents the month’s trading activities shows that buyers are still in control, while technically forming a double top that supports pullback or a breakout depending on market forces in the new month. This may signal the beginning of a short bear-run in the new month, depending on sentiment in the market’

Projection

He projected that the Nigerian equity market’s benchmark ASI would close the year 2023 on a positive note, despite the post-election adjustment, changing policies of the new administration and the ongoing war in Ukraine that continues to threaten the global economy, with commodity prices vacillating helplessly. He said the positive performance in the last month as an opportunity for discerning investors and traders to cash out and reposition in the new month after the pullbacks ahead of the half-year earnings season in July.