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GuestPost

Day long call auctions hurting the Indian markets

The guest post below is written by Pratyush Mittal from Dalal-Street and developer of Screener-Raoji

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SEBI holds our highest regards for they have been the backbone in the revolution of Indian equity markets. SEBI revolutionized the markets with various changes including NEST, quick settlements, demat etc., and by always maintaining a strong vigilance and discipline over the exchanges and investors.

To tap the growth in this decade, Indian markets will need a continuous investment and an encouragement to entrepreneurship. We must remember that today’s large caps come from once small cap space. These growing companies need to be nurtured and supported through free trade and participation of investors & market makers, rather than being alienated from the investing space. It is only through an active secondary markets, that the primary markets will grow. In relation to this, the recent call auction mechanism has raised various concerns for market participants:

Concerns:

  1. Running the call-auctions throughout the day at an hourly interval and cancelling the order book is a flawed concept. World-over, the call-auction mechanism is implemented only to provide stabilization to securities during the opening and/or closing sessions, to prevent freak trades due to panic and anxiety. Running it throughout the day at hourly intervals has killed the already low liquidity and thus the interest of investors in small stocks.
  2. The criteria for choosing stocks seems arbitrary as it ignores the value of transactions. The list covers almost 2100 stocks of ~3000 active companies. Many of these companies are high quality companies.
  3. We believe that low liquidity is NOT responsible for manipulations. Being investors for over 30 years, we have seen that one thing common in any stock manipulation is high liquidity. These cases, where lots of small investors lose money are usually of pump and dump. Wherein manipulators benefit only when volumes are high and material amounts are involved to trap small investors.
  4. The free markets don’t feel free and transparent any longer. It has become virtually impossible to place large orders. The moment an investor places a large buy order, the sellers disappear. Similarly, when an investor wants to exit his position from a stock, even the existing buyers go away.
  5. We are fearful, that if the mechanism in not corrected or improved timely, then it will curb a lot of investing sentiment in the country. Many SMEs might not be able to come up with IPOs and hurt the entrepreneurship in India for future.

Solutions:

  1. SEBI already has too many good tools and mechanisms to curb manipulations. For eg: moving the suspicious scrips to T group. There are various good magazines and blogs, which highlight such suspicious companies on a regular basis.
  2. Running call auction sessions only for opening and/or closing session (that is only for few hours followed by normal trading).
  3. Implementing the mechanism in a phased manner by trying it out initially for 50-100 stocks and seeing if there are any benefits or not.

Coverage:

The ill-affects of the mechanism have been shared by many other investors, and these are few of the coverage:

When Sebi’s outwitted at call auction – DNA

SEBI’s new baby – rules for illiquid stocks – Prof. Neeraj Marathe

Periodic Call Auctions For Illiquid Stocks – Concerns – Bosco Menezes

The need of the hour is to encourage the investors into investing rather than implementing a mass punishment. We hope that the concerns soon turns into an achievement to take the nation on a new path.

Happy Investing!!!

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GuestPost

Analysis of Delisting of Fresenius Kabi Oncology

The delisting move of Fresenius Kabi Oncology has raised eyebrows as only a few months back the company did a OFS.

SES Governance , a non profit Corporate Governance Research and Proxy Advisory firm has shared it’s analysis of the delisting.

[gview file=”https://alphaideas.in/wp-content/uploads/2013/04/SES-Fresenius-Kabi-Oncology-Research-April-20131.pdf”]

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AnalystMeetInvite

Analyst Meet Invite:L&T Finance Holdings 25 April, 2013

[gview file=”https://alphaideas.in/wp-content/uploads/2013/04/LT-Finance-Holdings-Ltd-Analyst-Meet-Invite.pdf”]

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Ron Paul on Gold:I am buying

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GuestPost

Enduring Business Moats in India

Today we have a special treat.Vijay Gawde is a seasoned investor in the Indian Equity Markets and he runs Equity Growth Partners.

 

I had asked Vijay to write a guest post and he graciously obliged with the write up below which talks about enduring business moats in India.-Raoji

 

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castle_and_moat

“Moat” – a medieval term, coined and popularised in business by Warren Buffett who refers it to as a durable competitive advantage. Warren Buffett always looks for companies with durable competitive advantage; businesses with deep and wide economic moat.
In capitalism, if you own a wonderful business it is like owning an economic castle. And the nature of capitalism is that people are eager to come and take your castle. It is perfectly understandable. If you are selling mobile phone handsets, there are going to be five others who are going to try and sell similar or better handsets. If you own a restaurant, competitors will come and copy your recipes and will hire your chef and so on. Capitalism is all about somebody coming and trying to take the castle.

So to protect your valuable castle (wonderful business), you need a castle that has moat (durable competitive advantage) around it. Moat can be in the form of strong popular brand, superior product, quality of service, infrastructure, size and scale of operation, distribution network, management reputation etc. All these factors individually make moat deeper and combination of factors together makes moat wider. Deeper moats are source of high profitability and wider moats protects the consistency of supernormal profitability over longer period.

So, In Indian context which are the companies that have strong and enduring business moats? Let’s have a look at some of the examples.

• Asian Paints is one obvious example that comes to mind. Here is a company that has created a strong brand out of boring product such as chemical or paint. In fact the process of selecting paint hardly used to be consumer’s own decision. But this company focused on engaging the end user and created differentiated products; the strong brands backed by its hard to replicate nationwide distribution network have created a dominant market leading position for itself – enduring moat.
• HDFC Bank is another prominent example where company is into a seemingly commodity business where raw material and final product is both money. The bank created a strong entry barrier (the enduring moat) with its quality of service, professional management and the most important factor in banking business – the “Trust” of its customers.
• Pidilite Industries is one more example where company created a strong brand out of boring chemical adhesives. “Fevicol ka majoob jod” – is company’s enduring business moat. It enjoys near monopoly in its line of business with hardly any visible competition. Company widened its moat by entering in other lines of businesses such as water proofing compounds etc.
• Titan is a company that has become synonymous with watches in India with its high quality and affordable products. The brand Titan extended its enduring moat into other areas such as jewellery, eyewear, fashion accessories etc. and has become sector leader in each of its business line – Watches(Titan), Jewellery(Tanishq), eyewear(Titan eye+) and fashion accessories (Fastrack).
• Naukri.com is India’s most successful online recruitment website. It is the only site that survived the dot com bubble. It has countered even the global competitors such as Monster, Dice etc well and has become India’s most preferred recruitment channel. The company (Info edge) extended its business moat in other areas such as matrimony (jeevansathi.com), real estate (99acres.com), education (shiksha.com & mertination.com) and host of other emerging new businesses.
One factor common in all the above companies is the possession of a strong and enduring business moat which has given them a dominant leadership position and that has resulted in creating huge wealth for its shareholders over the years.

Disclaimer: No part of this article should be inferred as an investment advice. Author may have vested interest in all the companies mentioned directly or indirectly.

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