Friday, April 11, 2014 5:14 PM / Research
We foresee a less speculative trading with a strong chance of consistent and moderate bargain outlook in the Consumer and Industrial Goods sectors which appeared to be the nest of defensive stocks and safe haven for long term investors. The poor performance of -6.35% loss recorded in Q1’14 may also drive investors towards defensive stocks.
The market outlook for quarter two looks brighter, though not without bumps, as more than half of the active and value stocks across the board are trading at their 3months low due to significant price correction witnessed throughout the Q1'14, depressing the key benchmark indices by -6.25% amid strong negative breadth.
The outlook recorded in Q1'14 came in line with our position stated in NCM report for the month January titled ‘ NCM JAN’14: Fasten your belt as bumpy ride lies ahead- Proshare’.
We expect a sustained moderate rally in Q2'14 as valuation across aboard looks attractive with a better prospects, though the Q4'13 earnings reports have achieved a positive but not a sterling outlook, which may continue to affect the pricing of the stocks across board. The season has not been able to drive the expected bargain appetite so far in the new quarter.
Nevertheless, we are very optimistic that market would record improved bargain and patronage as the key benchmark indices has been regaining its consciousness from short term bearish posture.
Though, there is a strong tendency that ASI may maintain a trading range band in the new quarter while we remained optimistic that the recovery trend would break above its 50% Fibonacci retracements as market recovery is at crucial point below its 50% Fibonacci retracement level (around 39,000bpts)
Looking at the how market has feared in the quarter, analysis revealed an unimpressive performance of -6.25% as against huge gain of +19.44% recorded in the previous year comparable period- an indication of significant decline in bargain appetite towards equity in the quarter.
Meanwhile the month of February remained the worst hit with -2.50% loss, followed by March and January with -2.05% and -1.83% loss respectively.
To buttress the low bargain appetite further, it was observed that market volume turnover collapsed by -26.85% with corresponding low-key growth of +6.31% in Naira votes when compared with previous year comparable period.
In addition, sectoral review revealed active sell activities in the Q1’14 as the Banking stocks and Oil & Gas stocks were the worst hit. The NSE Banking and NSE Oil & Gas posted -16.64% and -15.20% loss respectively while NSE Industrial Goods appeared to be the only sectoral indices with moderate gain of +1.59% during the period under review.
However, we envisage that the current low dividend yield outlook across board, particularly in the most active sectors coupled with tight regulatory banking environment would continue to drive low bargain appetite, price volatility and cautious trading on the bourse and this may keep investors in a cautious mood for long.
Though, the Banking & Oil & Gas sub-sectors seem to be leading the performance table so far in the current quarter (Q2’14) but we foresee a less speculative trading with a strong chance of consistent and moderate bargain outlook in the Consumer and Industrial Goods sectors which appeared to be the nest of defensive stocks and safe haven for long term investors. The poor performance of -6.35% recorded in Q1’14 may also drive investors towards defensive stocks.
Gainers and Losers
The profile of top 10 performing stocks in Q1’14 revealed that investors are gradually moving away from penny stocks as against the outlook observed in the previous year while medium capped stocks recorded improved patronage. The outlook further gives credence to likely cautious trading and patronage to industrial and consumer goods stocks in the coming quarters.