Nifty will have to push past 8,420 to rally higher.
We had mentioned in Thursday’s closing report that the Indian indices may witness selling at higher levels. The weak but positive opening on Friday was followed with the benchmarks trading in the green during most of the session. The indices were strongly pulled up after each plunge. After 2pm the benchmark indices lost their strength and moved into the red for the second time in today’s session. However, they recovered to close in the green.
S&P BSE Sensex opened at 27,950 and moved in the range of 27,913 and 28,093 before closing at 28,047 (up 106 points or 0.38%). NSE’s CNX Nifty opened at 8,361 and moved between 8,347 and 8,401 level before closing at 8,390 (up 32 points or 0.38%).
NSE recorded a volume of 91.59 crore shares. India VIX rose 1.25% to close at 13.9725.
India's wholesale price inflation (WPI) dropped to a five-year low of 1.77% in October over continuing decline in food prices, including vegetables. The WPI based inflation was at 2.38% in September and 7.24% in October 2013. As per data released by the government on Friday, the food inflation fell to a nearly two-and-half year low of 2.7%.
Coming back to markets, Jaiprakash Associates (8.14%) was the top gainer in ‘A’ group on the BSE. The stock posted weak result for this quarter. It posted net loss for the second consecutive quarter.
Balkrishna Industries (16.30%) was the top loser in ‘A’ group on the BSE. It hit its 52-week high on Wednesday. After market hours on Wednesday, the company announced its September quarter results. Balkrishna Industries’ second quarter net profit fell to Rs90.16 crore compared with Rs107.94 crore in September 2013 quarter. Its sales however increased from Rs839.58 crore to Rs881.31 crore for the relevant quarter.
Hindalco (3.59%) was the top gainer in Sensex 30 pack. Although the top line of the company for September 2014 recorded an increase over September 2013 quarter, its bottom line suffered due to huge exceptional item of Rs431.22 crore.
Weak September 2014 quarter result of Cipla pulled the stock lower. The stock (2.45%) was the top loser in the Sensex 30 stock.
US indices closed Thursday in the positive.
More workers quit their jobs in September as hires reached their highest level in nearly seven years, the Labour Department said on 13 November 2014. Hires increased to a seasonally adjusted 5 million, a level last seen in December 2007. Quits rose to a seasonally adjusted 2.8 million in September from 2.5 million in the previous month, data showed.
Except for Shanghai Composite (0.27%), KLSE Composite (0.11%) and Seoul Composite (0.78%) all the other Asian indices closed in the green. Nikkei 225 (0.56%) was the top gainer.
European indices were trading marginally in the red. US Futures were trading in the green.
According to survey of economic forecasters released on Thursday by the European Central Bank (ECB), inflation in the eurozone is anticipated to remain super low for the remainder of this year and accelerate only gradually in the next two years.
German gross domestic product rose 0.1% in the three month through September after shrinking a revised 0.1% in the second quarter, the Federal Statistics Office in Wiesbaden said today. The French economy grew 0.3% after contracting 0.1% in the April-June period.
Know specific competitive advantage to pick stocks better
Want to shortlist stocks for the long run? Look for companies that have moats, says Warren Buffett, the legendary investor. Moats refer to sustainable advantage that a company enjoys. It is not easy for a competitor to breach an impregnable fortress if it is protected by a moat of competitive advantage.
The book Why Moats Matter, authored by Heather Brilliant and Elizabeth Collins of Morningstar Investment Research, presents a guide to how an investor can pick ‘great’ businesses that have moats. A great business, as the authors mention, can fend off competition and earn high return on capital for several years, secure behind a moat.
In the first half of the book, the authors detail how they put the concept of moats, valuation and margin of safety into practice. In the second half, the authors provide a detailed guide, with examples, for analysing moats in eight different sectors such as basic materials, consumer products, energy, financial services, healthcare, etc, to name a few.
Competitive advantage can come from sources like intangible assets, cost, switching costs, network effect and efficient scale. Each of these sources is explained in great detail.
Intangible assets, such as brands, patents and government licences, can keep competitors at bay. The authors give one such example of Sanofi, a pharmaceutical company that benefits from patent protection that makes competing with it tough. Similarly, Walt Disney had built a moat around its brand in the entertainment business and Google in the search business.
Firms that enjoy economies of scale have a certain kind of moat around them—that of cost advantage. Railroads in America have enjoyed such competitive edge from their sustainable low-cost advantage compared to barges, ships, aircrafts and trucks.
Switching costs indicate the costs that a customer has to incur if she has to switch from one product to another. The higher the cost of switching, the more beneficial it is for the company. Citing Apple, as an example, the authors mention that there are a variety of switching costs around the iOS platform of Apple that allows the company to retain a good portion of its user base. Applications or media purchased from the iTunes store may not run on other devices that use a different operating system.
The value of a product increases as more and more users join and use the service; it makes a strong company become stronger. This moat is often sought to be created by social media and online e-commerce sites. The sheer numbers and a large interconnected community then becomes a moat.
Expedia, an online travel agent, is one such example; due to its huge transaction volume, it is a highly coveted distribution channel. Travel suppliers are eager to list their service on its site. The larger the number of options, the larger is the number of consumers visiting the site, creating a virtuous cycle.
At the other end, there can be a market of limited size which can effectively be served by just one or a few companies. Pipelines, the authors mention, are the best example. Because these companies secure long-term contracts and there is little risk of disruption, the economic profits are sustainable.
Further, the authors explain how they give moat ratings. A low moat rating is given when a company is likely to benefit from competitive advantage and earn excess return for a period of at least 10 years. When the firm is expected to deliver excess returns for the next 10 years or more, it is given a higher moat rating.
Moats that seem unassailable in one period may disappear with technology or other changes. Once a top mobile handset manufacturer, Nokia, and hand-held gaming device manufacturer, Nintendo, have been swallowed up by their competitors. While they commanded a huge market share when they were new in the market, it wasn’t long before competitors came in and capitalised on that opportunity. While initially they had a ‘wide’ moat, as the competitors came in, the moat ‘narrowed down’.
There are plenty of investment books that focus on business fundamentals and valuation. This book tries to be different by adding how businesses with a competitive advantage can benefit. The book will give you a fundamental framework for long-term investing—how to identify a great business and when you should buy, to maximise return. Now, it’s your turn to find companies with moats in India and hold their stocks for the long term.
BJP MLA Suresh Halwankar, who has been appointed as Chief of the one-member Textile Committee has a dodgy track record. He was disqualified by the governor as MLA in July 2014 after being convicted for power theft and sentenced for three years. He was able to contest elections after obtaining a stay from the High Court
Few days after Prime Minister Narendra Modi included a bank defaulter in his cabinet , Maharashtra chief minister Devendra Fadnavis has appointed an accused in power theft as chief of a one member panel.
Fadnavis has appointed Bharatiya Janata Party (BJP)'s member of legislative assembly (MLA) Suresh Halwankar as chief of the one-member Textile Committee. The MLA would be assisted by eight officials from the textile department.
Halwankar, who hails from Ichalkaranji, a textile-town in Kolhapur district, has been accused in a power theft case that caused a loss of about Rs21 lakh to state electricity board. The MLA owns a power loom factory in his hometown.
The MLA and his brother were charged under sections 135 and 138 of the Electricity Act, after a flying squad raid revealed that the meter of the factory was running 45% slow, causing a loss of Rs20.97 lakh to the electricity board.
In May this year, Halwankar was convicted and sentenced to three years’ rigorous imprisonment and Rs10,000 fine. In his appeal before the Bombay High Court, the MLA had said his brother was taking care of the factory and he was not involved in the day-to-day functioning.
The High Court, while admitting his appeal In July stayed Halwankar's conviction. However, before the HC stayed his conviction, the Governor had passed an order disqualifying him. Halwankar then moved another petition seeking that the Returning Officer be directed to accept his nomination form.
In September 2014, the bench of Justice Abhay Oka and Justice Girish Kulkarni refused to grant an interim relief to Halwankar and asked him to submit his nomination form to the Returning Officer for the Assembly elections.
Last month, Halwankar contested and won the election from Ichalkaranji.
The Textile Committee was formed by the previous Congress-Nationalist Congress Party (NCP) government and had representatives from textile institutions, business associations besides bureaucrats.
According to a report from the Times of India, the Fadnavis government avoided directly mentioning sacking of the previous committee in the notification issued on Thursday.
"The new committee has assigned the same tasks as the previous committee. Halwankar's committee can invite experts as per need, says the notification issued by RS Khadse, an official at the department of cooperation, marketing and textile," the report says.