The benchmark indices did nothing significant last week but all the action was confined to midcap and smallcap stocks. The BSESENSEX lost 96.15 points or 0.33% to close at 29,365.30 points while NIFTY lost 31.40 points or 0.34% to close at 9,119.40 points. Against these minor losses BSEMIDCAP gained 0.95% but BSESMALLCAP gained a significant 1.92%.
The current rally began in the last week of December 2016 and is about four months old. During this period the BSESENSEX gained 3,558 points or 13.78% while NIFTY gained 1,211 points or 15.31%. BSEMIDCAP gained 2,785 points or 23.79%. BSESMALLCAP gained a massive 3,618 points or 31.33%. Another way of looking at the same data is that the Midcap gained almost double of the SENSEX while SMALLCAP gained two and a half times of the SENSEX. Complete domination and it is this momentum which has kept retail investors coming to the market. Many stocks hitting new highs are those which have not traded for years together. Tips are the order of the day and investors are still making money. This is likely to last for some time as the final move would happen with all the heavyweights in the benchmark indices moving in tandem.
Thursday sees the expiry of April futures and this series the bulls and bears are evenly matched. The current level of NIFTY is lower by 54.35 points or 0.59% which is neither here or there. The possibility of volatility increasing as we approach expiry is quite likely.
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% 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.
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 more or less a similar fashion by Infrastructure companies, transmission lines and also real estate rental companies. The issue lot would be Rs 10 lacs and the trading lot would be Rs 5 lacs. This effectively means there would be no retail subscription during the initial offering.
The above product would be offered by companies operating toll projects on BOT basis in the infrastructure space where the road has become operational or is in the final stages of becoming operational. It could be offered by companies who have transmission lines which they have won on a BOT basis. This could become a highly successful product for real estate companies who own commercial space and have given the same on lease. I believe this could be a product of the future and retail investors should look at understanding the product and the intricacies of the same. The biggest comfort is the liquidity and the fact that 90% pf income has to be distributed twice a year.
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 and Martin, the English grammar book that almost all of us would have used in school. The company would raise Rs 325 crs from a fresh issue and an offer for sale of 60.23 lakh shares in a price bad of Rs 660-670. The company reported revenues of Rs 540 crs and profit after tax for the year ended March 2016 of Rs 49.3 crs. The revenues for the nine months ended December 2016 was Rs 150 crs and a net loss of Rs 86.78 crs. The business is highly cyclical and almost 75% 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 crs 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 HNI’s 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. It is also unfortunate that a large number of companies from the broad education space have not made money for investors.
I believe this company has the potential to make money over the next 4-6 quarters. The immediate trigger is the listing gains and consolidation thereafter. Entering the secondary market post listing may not be the best thing to do.
Markets are biding their time and all action is in the small and midcap space. Enjoy this phase of the rally.
