Key Reasons for downtrend in Banking and Consumer Goods Sub-Sectors

Proshare

Wednesday, February 18, 2015 10:14 PM / Research

 

The recent performance of the CONSUMER GOODS and BANKING stocks as indicated by analysis justifies the great concerns raised by some of our subscribers recently. So far in the year, analysis revealed that the Consumer Goods and Banking stocks have been under intense pressure while both sectoral indices have plunged by 18.42% and 17.29% respectively to be among worst performing sectoral indices. In the light of this, Below is our thought in response to some of the recent concerns about the steep decline in stocks’ prices, particularly in CONSUMER GOODS and BANKING sub-sector.

The falling prices in these two subsectors (CONSUMER GOODS and BANKING) could be largely attributed to the general bearish run in the market which of course cut across board due to the growing uncertainty in our social-political economic space.

 

Particularly, the shifting of the general elections seems to have heightened these uncertainties which had made many investors to cautiously reduce their exposure in the equity market.

 

Consequently, we have seen reasonable growth in investors’ apathy- the N800.74billion loss recorded in five (5) trading sessions last week’s buttressed this assertion.

 

Apart from the fear factor, which is currently causing panic selling, the recent devaluation of the Naira had really put so many CONSUMER GOODS FIRMS under intense pressure since a lot of companies have to import their raw materials for productions.

 

As a result of this, companies in FLOUR BUSINESS and other PHARMACEUTICAL firms would experience a significant cut in bottom-lines as a result of high FOREX. Also, the growing inflation would reduce the purchasing power of consumers across board, which will also add to the pressure on company earnings and their sales capacity - The CONSUMER GOODS STOCKS are more prone to this.

 

In the BANKING SECTOR, the tight monetary policies and low liquidity outlook in the sub-sector remain great challenges for banks in the recent years. This has really put so many banks under pressure to raise fresh funds via right issues and Eurobonds. This has significantly increased external exposures of these banks, which of course seems to have affected investors' loyalty towards banking stocks lately.

 

In addition to this, we have been observing falling trend in both top-line and bottom-line in the sub-sector. Particularly, most big banks have been recording falling bottom-line in the face of growing operating expenses, which remains a pointer to possibility of lower dividend rewards to investors in near term.

 

There is no doubt that these fundamental would have been considered, including other fundamentals issues that are not in public domains, in pricing these stocks. This does not suggest that fundamentals of these firms in flour business and big banks have gone bad.

 

Also it is important to note that in a bear market, fundamentals are usually thrown out of window because of FEAR, which means market may not be accurate in reflecting the true/fair value of most stocks in a BEAR MARKET.

 

On this note, it would be advisable for retail investors to engage market with long term objectives as Nigerian Stock Market is in a bear mood at the moment.

 

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