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. 

• Liquid funds 

Investors can invest in liquid funds which is another category of debt mutual funds. The funds collected in the mutual funds are invested in government securities like treasury bills that have a maturity of 91 days. The biggest benefit of investing in this mutual fund is that it does not have any lock-in period and an investor can withdraw any amount without any charges of entry or exit loads. They offer returns between 7% to 9%.

• NSE goBID (Government Bond Investment Destination)

This investment option is available to the resident investor. Resident investor for India is that individual who has spent 182 days or more of the financial year in India or stayed in 60 days or more in the year and for 365 days or more in the 4 years preceding the relevant financial year. The investor can directly log in to  NSE goBID’s website or mobile application and can invest in government bonds of their choice by bidding for the same. 

Advice for the investors 

Government bonds or securities were considered an investment option suitable for banks, financial institutions, and corporate, but now they are opening up for retail investors as well. Its features being a risk-proof investment, delivering good long-term returns, high liquidity, and making the portfolio diversified makes it to be an ideal investment plan for retail investors. 

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.

The investment dilemma – Cyclical stocks vs Defensive stocks

It all depends on the investor’s ability to risk appetite. One can only invest in cyclical stocks if he/she feels to read the market sentiment and plan exit and entry from a trade accordingly. Whereas, one can invest in defensive if he/she prefers to avoid risks and enjoy stable returns irrespective of the economic situation. However, the portfolio will look more balanced if a certain percentage of capital is equally invested in cyclical and defensive stocks. By doing this, the investor can leverage the benefit of both stocks i.e. high returns during growth and stable returns during harsh economic conditions. Having defensive stocks in the portfolio acts as a protective shield. Stocks of reputed companies can absorb market fluctuation and remain unaffected by market volatility.
The trick is to understand the nature of stocks and how they will respond to the economy, which is known as the top-down approach. Alternatively, investors can adopt a bottom-up approach that will require them to thoroughly investigate the company, its background, and financial performance to make an investment decision.

Will cyclical stocks roar in a post-pandemic world?

Afraid to incur losses during the pandemic, the investors shifted their investment to defensive stocks of Pharma and IT. But, with vaccination drives growing at a rapid pace, the cyclical sectors can make a comeback since the availability of vaccines can bring businesses back to normalcy.

Word for the investors 

A golden cross can sometimes produce false signals. In the case of the golden cross, investors should always confirm the bullish trend of a company with positive news in the market such as new products or services launched, positive earnings, debt paid off, etc. Another way to confirm the golden cross to be reliable is through trading volumes, as during the cross over the trade volumes are expected to be high showing higher participation. For every entry into trade, investors should have an exit strategy. Setting stop losses can help investors evade losses to a great extent.

What is an annual report?

It is a yearly publication that is published by the company at the end of the financial year which is sent to shareholders and other interested parties. The information available in the report is dated till 31st March. It is also available on the company’s website as a PDF file which can be downloaded.

The information mentioned in annual reports is taken to be official. Hence, any twisting or misrepresentation of facts in the annual report can be held against the company. It also contains auditor’s certificates indicating the authenticity of the financial data in the report.

How is an annual report helpful to investors?

Potential investors and existing shareholders form the primary audience for the annual report. For an investor, the reports contain relevant information about a company in its truest form. Several news sites and blogs throw abundant information that can be rumours or biased views which in turn impacts an investor’s ability to invest in the right stocks. Information gathered about a company is more reliable from its annual reports.

Here are some of the ways it can be helpful to the investor:

• Comes straight from the horse’s mouth.
• Gives an idea of the management sentiment
• The cleanest source of data
• Considered as the official statement of the company

What to look for in an annual report?

An investor does not need to read an entire lengthy document. Here is a guide that will help the investor to look for 8 important parameters to analyse while reading an annual report.

Corporate information:

One can get the details of directors, bankers, auditors of the registered and corporate office. Here, investors need to look at the designation of each board member, in the case of reputed auditors they can add certain reliability to the company they are investing in.

Products and financial highlights of last 5-10 years:

Investors can get information regarding the performance of a company’s entire product portfolio based on fundamentals such as revenue, EBIT, depreciation, and amortisation, tax, PAT (net income) and profit and loss. They can also get a glimpse of shareholders’ equity, assets, debtors, liability, and total debt from the balance sheet over the years and ratios.

Director’s report:

From this, investors can get a summary of the financial results and key developments in the company. Investors should look for the operational parameters such as capacity additions, capex plan, order book till the financial year-end, the average length of stay, occupancy rates, average revenue per occupied bed, average revenue per user, etc. Also, read the director’s report of 3-5 years to see if the management is consistent regarding achieving the targeted revenue over the years.

Management discussion and analysis (MDA):

It provides information on the trends of the industry. The SWOT analysis of the company will make one aware of risk factors impacting the performance. It is suggested to read 3-5 years of MDA to understand how the company has remained resilient in different economic scenarios.

Corporate governance report:

Provides insight regarding corporate governance since good governance makes operations and running of a business efficient. Look for the composition of the board of directors, brief background information on directors and independent directors of the company, attendance of directors in board meetings and annual general meetings, remuneration of directors, re-appointment of directors after completing the term, the composition of sub-committees, etc. Analyse if the profile of independent directors aligns with the requirement of the company as per sector of a company.

Information on shares of the company:

This is a highly valued one for the investors. In this section, a company shares information on the historical performance of share price, shareholding pattern of the company, pledging of shares by promoters during the year, split of shares, bonus shares distributed, etc.

Auditors report:

Provides information regarding the feedback of auditors on the financials of the company.

Financial statements:

Provides detailed information regarding profit and loss accounts, balance sheet, cash flow statement, and schedules of the financials for two years. Analysing these parameters will help us in checking the financial health of the company.

Below is a table that shows which factor in the annual report holds how much value.