Ride the tide

US Treasury Secretary Steven Mnuchin (right), is seen shaking hands with Finance Minister of India Arun Jaitley before a bilateral meeting during the World Bank/IMF Spring Meetings in Washington over the past weekend. Pic/AP/PTI

The benchmark indices did virtually nothing last week and were flat for all practical purposes. However, there was plenty of action in the midcap and smallcap space where prices seem to rise and rise without any let up. The BSESENSEX lost 96.15 points or 0.335 to close at 29,365.30 points. NIFTY lost 31.40 points or 0.34 per cent to close at 9,119.40 points. The broader markets saw BSE100, BSE200 and BSE500 gain 0.03 per cent, lose 0.07 per cent and gain 0.145 respectively. BSEMIDCAP was up 0.95 per cent and BSESMALLCAP 1.92 per cent.

In individual stocks, the top gainer was DLF up 14.405 followed by GAIL 5.59 per cent and HDFC Bank 3.99 per cent. The losers were led by Sun Pharma down 7.51 per cent followed by Coal India 4.73 per cent, ICICI Bank 4.51 per cent and Axis Bank 4.12 per cent.

A little slip
The Dow Jones gained 94.51 points or 0.46 per cent to close at 20,547.76 points. After recording sharp gains over the last three four weeks, the Indian Rupee lost some ground, losing 20 paisa or 0.31 per cent to close at Rs 64.61.

All the action happening is in the midcap and smallcap space. Nobody has any complaints on this front because the retail has more interest in this segment than in the large cap space. It would be a completely different ballgame, considering that many stocks from this space which are moving are doing so after a gap of three to five years.

It's rolling on
The current rally began in the last week of December 2016 and is currently almost five months old. During this period, the BSESENSEX gained 3,558 points or 13.78 per cent from 25,807 to the current level. NIFTY gained 1,211 points or 15.31 per cent from 7,908 to 9,119 points. BSEMIDCAP gained 2,785 points or 23.79 per cent from 11,702 to 14,487 points. BSESMALLCAP was the star gaining 3,618 points from 11,548 to 15,166 points. Looking at the same in a different perspective is that the BSEMIDCAP gained almost double of what the SENSEX gained and almost 2.5 times what the BSESMALLCAP gained.

Time and again, it has been seen that the midcap and smallcap indices are slow starters and then they gather steam as the juggernaut rolls on. Almost all rallies end with these two indices going berserk and markets then correcting very sharply. Currently, the early signs of markets topping out are yet not visible and therefore one may enjoy the current rally.

And it's Chand
There is an IPO nest week from S Chand and Company Limited. The company is a publisher and is well known for the text books it publishes. One of the most popular books that comes to mind is Wren & Martin, the English grammar book that almost all of us would have used in school. The company would raise Rs 325 crore from a fresh issue and an offer for sale of 60.23 lakh shares in a price band of Rs 660-670. The company reported revenues of Rs 540 crore and profit after tax for the year ended March 2016 of Rs 49.3 crore. The revenue for the nine months ended December 2016 was Rs 150 crore and a net loss of Rs 86.78 crore. The business is highly cyclical and almost 75 per cent of the top line comes in the fourth quarter (January-March). The company has acquired in December 2016 the business of Chhaya from West Bengal.

The company would achieve a turnover of between Rs 680-720 crore for the year ended March 2017 based on back of the envelope calculations. This would include revenues from the recently acquired Chhaya. We have, in the recent past, had a number of issues in the education space but unfortunately investors have not made any money in the same. This company looking at the response from HNIs and the funding cost and grey market premiums, is indicating that there are listing gains to be made for even the leveraged HNI. The retail portion would be oversubscribed and it would be the lucky investors who receive allotment who would benefit.

Go either way
April series futures expires on Thursday, April 27. The current value of NIFTY at 9,119.40 is down by 54.35 points or 0.59 per cent compared to the previous month. This is neither advantage to bulls or bears and the series could go either way. With bulls ruling the roost in the last three months, bears would be looking to press the advantage home. One is likely to see higher volatility as we approach expiry. The following week begins with a holiday on Monday and the long weekend would bring about a reduction in open interest post the expiry and the new series beginning. A new product called 'InvITs' would be launched in the coming days. InvITs are Trusts which issue Units against underlying revenue generating infrastructure assets, which has achieved COD and been generating revenues since at least one year. InvITs ensure steady revenues to the holders of the units on more or less assured returns basis. 90 per cent of the distributable cash flow from the assets have to be distributed minimum twice in a year. This distribution makes for better returns than fixed deposits.

Ride the rally
This product would have unique appeal for retail investors where there are features of a debt instrument with decent returns and virtually no risk of downward interest rates. The assets are matured and therefore carry virtually no execution risk. It is highly liquid as it would be traded on the stock exchanges. Such products would be offered in similar fashion by infrastructure cos, transmission lines and also real estate rental companies. The issue lot would be Rs 10 lakh and the trading lot would be Rs 5 lakh. This effectively means there would be no retail subscription during the initial offering.

Markets are looking tired and going nowhere. With action in the midcap and smallcap space, market momentum would continue. Do ride the rally as there is some distance to go yet.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd.
Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only.