Expect sideways movement with focus on Smallcap and midcap space

The week gone by had four trading sessions, but it had plenty of action and behaved on expected lines. It began positively, went sideways, gained and then crashed. At the end of it all, it was a flat week but with all important levels being touched.

BSESENSEX lost 58.15 points or 0.10 per cent to close at 61,054.29 points while NIFTY gained 4.00 points or 0.02 per cent to close at 18,069.00 points. The broader market saw BSE100, BSE200 and BSE500 gain 0.19 per cent, 0.30 per cent and 0.40 per cent respectively. BSEMIDCAP gained 1.41 per cent while BSESMALLCAP gained 1.27 per cent.

The Indian Rupee gained 2 paisa and closed at Rs 81.80 to the US Dollar. Dow Jones had a torrid week and lost on the first four days of the week. It recovered ground on Friday but ended the week with losses. Dow Jones lost 423.78 points or 1.24 per cent to close at 33,674.38 points.

The US FED raised interest rates by 25 basis points on expected lines. The new rate band is 5 per cent to 5.25 per cent and the same has come to these levels by increases in 14 months from March 22 when the band was next to zero at 0 per cent to 0.25 per cent. While the indication after the meeting is that there would be a pause going forward, there is new concern about the health of small regional banks in the US. PacWest and First Horizon Bank bore the brunt of selling and lost over 47 per cent and 40 per cent respectively while many other banks chipped in with smaller losses. Things are no longer hunky dory in the US as far as banking is concerned.

Friday's indication from MSCI about the weightage to be given to the merged entity of HDFC twins update shattered the markets. The expectation was that the combined entity would get a "limited investable" factor of 75 per cent, and instead was given one of 50 per cent. This led marketmen to recalculate that instead of inflows of 25,000 crore into the combined entity there would be outflow of Rs 2,000 crore. This led to a selloff in the two stocks which brought down the banking sector as well.

HDFC lost Rs 161.20 or 5.63 per cent for the day while HDFC Bank lost Rs 101.85 or 5.90 per cent. These two stocks lost 258 points and 394 points on the BSESENSEX making a total of 653 points while BSESENSEX lost 694.96 points on Friday. Very clearly it was a single event which shattered the confidence of markets.

The highs of the BSESENSEX during the week were 61,797.91 points while it was 18,267.45 on NIFTY. It failed to touch or cross the resistances mentioned at the beginning of the week. Very clearly the mood in the market has suffered a setback post Friday.

An interesting takeover deal has been announced. TCNS Clothing Limited a fashion retailer which had listed in August 2018 at an issue price of Rs 716 has sold a portion of its promoters shares to ABRFL for cash at Rs 501. The current market price is hovering around these levels. One expects a return of 15-18 per cent from equity investments and from a company listed for a quarter less than five years, the performance can at best be termed as pathetic. Instead of doubling one's money, TCNS has lost 30 per cent in value over 5 years compared to the issue price.

To add insult to injury, the customary open offer is not for cash but a complex offer for ABFRL which is offering 11 shares of ABFRL instead of 6 shares in TCNS. One wonders whether such a lopsided, anti-minority shareholder offer will ever find muster with the regulator? Promoters are paid in cash and minority shareholders get a share swap and lose another 30 per cent in value. This is not only a first of its kind but is unexpected from the house of Kumar Mangalam Birla. The regulator must step in to protect minority shareholders' interest on a war footing.

The week ahead sees a REIT offering from Nexus Select which is tapping the capital markets with its offering which includes a fresh offering of Rs 1,400 crore and an offer for sale of Rs 1,800 crore. The trust has 17 malls in A class towns and metro's totalling 9.8 million square feet with 96 per cent committed occupancy. The company has an average of 5.7 years of forward leased contracts. The company has a mix of rentals which are fixed and also variable with a percentage linked to tenant sales. The company has an annual 5 per cent rental hike with its contracts which are typically renewed every three years.

REIT's have to give a forecast of their expected returns of investment and cash flows for a period of three years at the time of making the offer. Nexus Select is talking of a return of 8 per cent per annum with an increase of 17 per cent CAGR. The fund would be distributing 100 per cent of its net operating income. The unit value is Rs 95-100 and the NAV is Rs 127.73, offering a discount and hence potential upside on listing. The instrument is attractively priced and offers an investment in the consumption story of the middle class. There is no comparable player currently listed in the markets. Investors looking for a fixed income product with growth should consider this as an investment.