IPO plans of the retail pharmacy chains 

MedPlus Healthcare

MedPlus Healthcare Services have filed DRHP with SEBI to raise Rs 1639 crore through the IPO. The offer is further segregated into Rs 600 crore as the fresh issue and Rs 1039 for an offer for sale (OFS) by existing promoters. With the funds raised it will strongly focus on expanding its store network. In addition to the expansion, it intends to Rs 467 crore from the IPO funds for working capital requirements of its subsidiary Optival Health Solutions, which is India’s omnichannel retail pharmacy. Under the umbrella of Optival Health, it has an array of businesses such as : 

• MedPlus Mart: Order medicines and drugs online. 

• MedPlus ab.com: Quality diagnostic testing within the comfort of home. 

• MedPlus Lens: Purchase frames, lenses, sunglasses, and contact lenses at affordable prices. 

• Ritecure: Offers wholesale medical and surgical supplies and hospital pharmacy management to hospitals.

Businesses these days are adopting an omnichannel approach for better customer retention, high customer satisfaction, and improved inventory management. 

Beginning from 48 stores in Hyderabad, MedPlus Healthcare now has over 2000 stores spanning across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal, and Maharashtra. 

Wellness Forever 

Wellness Forever is the third-largest pharmacy chain in the country with its presence in 23 cities majorly in West India such as Mumbai, Pune, Kolhapur, Satara, Goa, and Karnataka. It houses all the domestic and international nutraceutical and global This omnichannel retail pharmacy through the IPO which is already released in the end-September plans to raise Rs 1500-1600 crore. The IPO offer will consist of a primary issue and an offer for the sale of shares by existing investors. Wellness Forever plans to expand to 1000 stores by 2023 utilising the IPO funds. 

Should investors invest in retail pharmacy chains? 

The importance of pharmacies has come to the forefront with the outbreak of the virus. Amidst India’s, unorganised and fragmented pharmacy retails these modern retail pharmacy chains are expected to grow steadily, have low business risk and deliver good returns. Also, with the rise in public healthcare expenditure, pharmaceuticals have become more accessible, thereby will fuel the pharmacy retail market, especially in rural areas and tier-II cities.

3. Bajaj Hindusthan Sugar

As the company name, the returns delivered by this sugar stock have been sweet since the past month. The stock prices of Bajaj Hindusthan Sugar have increased from Rs 14.50 to Rs 16.60 thereby delivering around Rs 14.50 percent return to its shareholders. Considering the timeline from the start of 2021 the stock prices have grown from Rs 6.15 to Rs 16.60 – clocking around 170 percent. Such huge returns can be attributed to the soaring sugar prices globally and the Government of India’s recent decision to sell ethanol-blended petrol with the percentage of ethanol upto 20 percent.

4. Gujarat Fluorochemicals

The company specialises in manufacturing and trading refrigerant gases, caustic soda, chloromethane, polytetrafluoroethylene (PTFE), fluoropolymers, fluoro-monomers, specialty fluoro-intermediates, specialty chemicals, and allied activities. The share price of Gujarat Fluorochemicals has risen upto 200 percent since the beginning of 2021 and has been receiving demand from overseas as well as domestic customers. The demand from the pharma and agro-industry to develop new molecules and add new products to its portfolio such as Lithium Heaxafluoro Phosphate- an important component for electric vehicles will further drive the rise in its stock price.

5. HFCL

HFCL is a telecom infrastructure provider that supplies and manufactures high-end telecom equipment, optic fibre cable, and optical fibre to telecom companies. Since the start of 2021 HFCL shares have gained 177 percent. The rise in the share price of HFCL is due to the rise in emerging 5G technology for which HFCL is gearing to offer various products, solutions, and services to the telecom companies.

With remote working becoming the new normal, and concerns to minimise pollution the emphasis on superior IT services, communication, and clean energy has been high, thereby the stocks of such companies have the probability to grow exponentially and will be delivering huge returns to emerge as multibaggers.

Value, premium, and luxury

The conglomerates are expanding their retail offerings to cater to the customers of all three segments ie. value, premium, and luxury. Reliance retail under the brand Trends is its economic range. With its recent initiative to introduce its new brand Avantra, it wants to target the mid-premium ethnic wear category and with the recent stake in Manish Malhotra and Ritu Kumar, it will foray into the luxury segment. On similar lines, Aditya Birla with Pantaloons is now targeting the premium segments by owning stakes in Tarun Tahiliani and Sabyasachi.

Entering into the luxury and retail segment

The preventive measures to contain has impacted these luxury brands causing their businesses to shrink by 30-35 percent and therefore needed funds to stay afloat. This is where the luxury brands and the conglomerates formed a symbiotic relationship as now the brands will now be available at lower valuations. As India accelerates its vaccination rate the restriction on weddings and festivities will be eased and is expected to bounce back and grow by 20 percent in the coming 4-5 years.

The technology leverage and expansion plan of Pepperfry

Leveraging the AR and VR capabilities on its app and stores will be easing the shopping of furniture online for the new age customers by giving them an idea of how a product will look in their homes. After experiencing the products at the stores, customers can order online. Once customers can visualise the products using VR and benefit from it, will elevate their confidence in Pepperfry’s offerings thus driving its sales.
Moreover, Pepperfry is changing its approach to modular business by standardising the customer experience at its new modular centres in cities of Hyderabad, Bengaluru, and Mumbai, etc. The online furniture marketplace has plans to build 200 offline studios based on the FOFO model ( Franchise owned, franchise-operated) to penetrate into Tier-II and Tier-III cities in India.

Investing in Pepperfry’s IPO – a good deal for investors?

Whether investing in Pepperfry’s IPO will be lucrative or not is too early to say since the IPO is to be launched in June 2022. The company is largely focussing on growth and ramping up its offline presence by expanding its experiential stores in metros and smaller cities. The online furniture company registered a 26 percent increase in revenue to Rs 260.6 crore and has trimmed losses by 33 percent to Rs 122 crore in 2019-20. But, here investors need to take cognisance of the business vertical they are operating in.

Against the overall furniture sales that touched $700 million in 2019-20 the online furniture purchase had less than 3 percent share according to RedSeer Consulting. In addition to this, furniture purchase online is largely a metro consumer phenomenon and in India, it is largely an unorganised market, people yet like to purchase it from local carpenters. Although, Pepperfry has ambitious expansion plans to cover small Indian cities and can drive sales if hiring and employment increases since furniture is a non-essential category. There can be green shoots for the Pepperfry if offices again open up since India has now reached the 100 crore vaccination mark.

How can Indians invest in FAANG stocks? 

Under the Liberalised Remittance Scheme (LRS) of RBI, every Indian individual can invest overseas upto $250,000 each year. Indians wanting to invest in FAANG stocks can do so from their broking account if the broking firm offers overseas trading services. 

Also, consider the following data of the recent FAANG stock prices at an exchange rate of Rs 75.32. 

• Facebook : Rs 24,357

• Amazon : Rs 255,675

• Apple: Rs 10,800

• Netflix: Rs 47,100

• Google: Rs 212,025

From the above stock prices of FAANG, it is quite evident that the stocks are expensive. To own a share from each company one needs to invest a massive Rs 5.49 lakh. To solve this, some broking firms or trading platforms provide a fractional trading facility where one can buy less than one share as well, which means they can be the shareholder of 0.00001 shares of FAANG. 

Otherwise, the second manner to invest in FAANG stocks can be through the mutual fund route to invest overseas. Several fund houses have launched schemes to invest in the foreign markets along with India. 

Word of advice for the investors 

Investing in the US markets might seem an uphill task but an informed decision backed by proper research can help in doing so. Investing in FAANG stocks can be profitable since the companies are well-established and are safe to invest in. This also goes without saying that one should always assess their risk-appetite level. In addition to this, one must keep a tab on inflation and interest rates, Fed reserve policies and growth rates across geographies since these factors influence the currency movements. 

Things to keep in mind before investing in an IPO

• Understand the business: Before beginning to invest, one must understand the nature of the business the company is in. The next step after understanding the business will be now to recognise the company’s growth opportunities and its capacity to capture the market share. An investor should avoid investing in IPOs if the business activities lack the clarity to an investor.

• Recognise the risk: Risks are inevitable while trading. Understanding the risk associated with the company is an important factor that should be considered. The current market scenario, its competitors, quality of products and services, liabilities including the contingent ones should be thoroughly analysed to decode any potential risks associated with the company. Such details are available from the company prospectus. 

• Financial Health of the company: The financial health of the company should be assessed with its revenues and profits being consistent over the past few years. If the revenues and profits are showing an upward trajectory, then it is a green signal for investment. One should also check the valuations, since offer price can be undervalued, fairly valued, or overvalued depending on the industry parameters and profitability ratios.

• Always read the DRHP: DRHP (Draft Red Herring Prospectus) is filed by a company to SEBI when it intends to raise funds from the company by selling shares of the investors. The prospectus elaborates how the company intends to use the money that will be raised, and the possible risks for investors. Thus, investors must go through the DRHP before investing in an IPO.

• Study the strength and weaknesses: Investors can figure out the key positives of the company from the DRHP. One should try to find the company’s position in the industry in which it operates, it is positioning, and strategies. By reading this, one can find more about the company’s prospects. 

• The utilisation of the proceeds: An investor needs to check that how the funds from the IPO raised will be used. If the purpose of utilising the funds is to repay the debts, then the investment is not lucrative. But, if the purpose is to repay the debts and expand the business or utilise it for general corporate purposes then it shows that the funds will flow into the business making it a good share to invest.

Final word for investors 

For investing in stocks, mutual funds, or IPO companies, investors first need to understand their financial goals. A wise investor should not make haste in investment decisions based on the market hype, publicity, and peer recommendation of someone else. Investors should do their research. If one can see future growth and potential in the company, then one should consider investing in its IPO.

What is the spot price polling mechanism?

Polling is the process of drawing information from a cross-section of market players about the prevailing price of the commodity having specifications as those of the contract traded on the exchange in the market. The exchange then conducts the polling for collection of spot prices from various centres including all Basis Centres and Additional Delivery Centres spread across the country, through Polling Agencies.
Prices of the underlying commodity are polled and disseminated to the market for three basic reasons:
a. It enables polling members to take a look at the future prices.
b. Enables exchanges to study price movements and help in surveillance.
c. Determining the final settlement price on the day the contract expired.

The price for a commodity at a center is polled from a group of polling participants. The polling agency is appointed by the exchange that collects quotes from each polling participant. It subjects the prices to the statistical process of bootstrapping to arrive at the final benchmark price.

Prices are polled twice daily from market participants between 11:45 pm to 12: 30 pm and 3:45 pm to 4:30 pm. Spot prices are displayed at around 12:45 pm on all business days in the physical market.

How is the spot price calculated?

Using the trimmed mean methodology, the spot price is calculated. The trimmed mean is calculated after discarding the largest and smallest values. After removing the values the trimmed mean is found using the standard arithmetic averaging formula.

SEBI’s proposal to bring transparency in polling

SEBI has made it compulsory for the exchanges to accredit an independent polling agency under its purview to improve transparency and credibility to the spot price polling mechanism.
It has decided to come out with a consultation paper on ways to enhance efficiency in the polling methodology adopted for determining the spot price of commodities to be correct and transparent. It is essential for arriving at the expected futures prices of the commodity. Moreover, any deviation in the linkages between the two prices could lead to an adverse impact on the prices of the two derivatives and the spot market.

Why circuit limits are placed? 

The malpractices committed by Ketan Parekh forced SEBI to implement index-based market-wide circuit limits with immediate effect from 2nd July 2001. News and information whether positive or negative have a profound impact on the movement of indices. Any time of the trading day if news of the government’s new policy, any civic unrest, or war arises, it can result in high market volatility and panic sell or purchase of shares. Since, retail investors are almost always the last to react to the news, in case of a sudden market swing they will not have adequate time to exit the trade thereby, incurring significant losses. Let us imagine a scenario where there are no circuit limits and an investor has bought stocks of a fertiliser company priced at Rs 200 five years back. The same stock is currently trading at Rs 1000 but due to the government’s decision to refrain from the usage of Urea in fertiliser, the stock falls back sharply to Rs 100 or even lower, resulting in heavy losses for the investor. A lower limit here could have cushioned the losses. 

The upper limit ensures that a stock price does not rise sharply and the lower limit restricts the stock prices to go lower.

How limits work for the Indian stock markets 

The circuit limit system of the Indian exchanges is applied at three stages of the index movement. The limits are set at 10%, 15%, and 20%. When a stock falls or increases by 10%, 15%, or 20% the trading is halted at that moment and remains paused until it resumes to the normal trading range. The limits also pause the trading in all equity and derivative markets. It is generally applied if either the BSE Sensex or Nifty 50 breaches the limits. When a stock hits an upper circuit there are only buyers present and while hitting the lower circuit there are only sellers present. Limits also differ from market to market for example in the US markets limits are set upto 7%, 13%, and 20%. 

 The duration of the halt after hitting the limits

The lower limit comprises of sellers only and the higher limit has buyers only, as long as there is no balance of sellers or buyers no trade is possible. Therefore, the halt is imposed until buyers and sellers are available for the trade to take place

The halt depends on the number of times a stock breaches the limits and the number of times it falls. Trading can halt for as short as 15 minutes to the whole day. Here is a table that shows halt times against breaching of limits. 

How does algorithm trading work?

Say, we might face a golden cross and death cross scenario where we feed instructions to the programme to purchase 100 shares of a stock when the 50-day moving average moves above the 200-day moving average and sell the securities as soon as the 50-day moving average goes below the 200-day moving average. 

Using this set of two instructions, a computer programme can be written that will automatically monitor the stock price, and based on the commands given the automated trading can place the buy or sell stocks when the defined conditions are met. The investor does not need to be present physically to monitor the live prices and graphs or sell and buy shares by itself. The algorithm does its work for the investor or trader efficiently. 

Top three strategies to sell and buy stocks using algorithmic trading 

Here are the strategies where algorithmic trading benefits the investor: 

• Trend identification

Algorithmic strategies can help to decode a trend or early reversal of it. The strategies in algorithmic trading are based on price, volume, support, resistance, moving averages, and other technical indicators. These are the simplest strategies to implement since these strategies do not require any predictions or price forecasts. Trades take place based on desirable trends that are straightforward to programme using algorithms without needing to go into predictive analysis. 

• Position sizing 

In stock market trading position management is crucial. How well one can manage its position is what differentiates an ordinary investor from a good one. Algorithmic trading has made position sizing easier since it does not have emotions and will execute the trade as per the pre-defined instructions set on the system. For instance, one can pre-decide the value of each trade to be not more than Rs 2 lakh. If the price of a share is Rs 400 the algorithm will automatically purchase 500 shares, and if the price is Rs 1000 then the system will buy 200 shares. This results in purchasing each stock of the same value irrespective of any bias towards any stock. 

• Stop-loss control 

We are aware of market uncertainties, hence we apply stop-loss to insulate from massive losses and manage the portfolios better. Algorithmic trading helps in modifying stop losses since markets are unpredictable. Putting stop-losses becomes a cumbersome task if the portfolio is large. Algorithms provide a convenient way to manage risk, where it can be fitted with strategies that change stop-losses on the movement of the stock in the portfolio. Any stop-losses be it trailing stop or 2% can be fitted with the algorithm. 

For instance, we are putting a trailing stop loss at 3% on every position and stop-loss price changes on the positive movement of the stock. We feed this information into the algorithm that changes the price automatically. Suppose, initially if the price of a stock is Rs 100 then the stop-loss price is Rs 97, if the stock price increases to Rs 103 then stop loss becomes Rs 100, in this case, this continues until it reaches the point where stock price goes below 3% it automatically sells the stocks to help you safely exit from the trade. 

Word of advice for the investors 

Before plunging into algorithm trading there are few things that one needs to know: 

• Knowledge of the programming language is required, since formulating these algorithms requires sound knowledge of languages such as C+, C++, Java, Python, etc. This calls for a strong programming foundation. 
• Faulty algorithms have the potential to give unsurmountable losses for the trader. Recently, a company named Knight Capital launched a new algorithmic trading software which lost 10 pounds every minute due to a rogue algorithm, by the time the company wrapped its business it lost a massive 440 million pounds. 

Lastly, it must be noted that not all algorithms work effectively in different market conditions.