Everyone wants to live long. To live long, apart from doing, yoga, exercises etc, one of the things we need is medicine. Though, Ayurveda, Homeopathy offer medicines in their own form, It is the allopathy or the medicines, that we have in consultation with our doctors, to get rid of their ills, which has bulk of its share.That is where the pharma companies, come into picture. These companies, do a lot of research, develop a drug, get the approval of authorities concerned and sell it to us. This is a big industry and the current global business is around 1.2 Trillion US dollars. ie close to 7 lac crore rupees.
The Indian market is estimated to be 36 billion USD. Of late we hear that the pharma sector is not doing well and the share prices have come down anywhere around 50 to 70% from their two year highs. Let us understand, what is happening in the industry.
Though it is a big subject by itself, I shall try to make it simple to understand. I call it as the MAGIC
Before we see the MAGIC in detail, basically the pharma and chemical companies do manufacture any one or more of the following categories.
a. GENERICS. When a drug is invented, normally the company that invents applies for a patent and the period of patent is valid for about 7 years. Till that period, no other company, can copy or produce that drug. After the expiry of the patent period, it is open and other companies can manufacture same or similar drug. The drug then moves into Generic category. Generic drugs are those drugs after the expiry of the patent period.
b. API – Active pharmaceutical Ingredient. is the main drug itself, where the active portion of the drug is present. Almost every pharmaceutical company is having API manufacturing.
c. CRAMS – Contract Research and Manufacturing Services, is an outsourcing activity where the company engaged does the work for another company in research or manufacturing. This is similar, to Foxcon making electronic components for mobile phones and assembly
d. Biosimilars. A biosimilar (also known as follow-on biologic or subsequent entry biologic) is a biologic medical product which is almost an identical copy of an original product that is manufactured by a different company. Companies like Biocon, Dr Reddys are investing heavily into this activity.
Having understood the basics, the Pharma sector has the MAGIC issues.
M- Margins. Majority of the sale of products come from Generics and there is heavy competition and there are also price regulations by the governments. Indian companies, with majority of sales in the US is struggling against competition and Pricing.
A- Approvals Any new drug, needs to be approved by the regulator and the major agency doing this is FDA or US FDA. US food and drug administration. A company has to make ANDA ie application for new drug approval and after getting that only, they can sell the drugs.
G- Geography. The market in which the pharma company present is also important and determines the sales, regulations approvals and margins. Currently majority of the sales is from US and Europe and US is the major market for Indian Pharma companies.
I – Inspection. Normally approvals and Inspections are a combination. However, Inspection is an ongoing activity. The regulators, check the manufacturing companies for quality, process compliance and data integrity. These inspections are periodical and based on the report, they can even prevent the companies from manufacturing till the noted issue is resolved to the regulators satisfaction.
C – Currency. Since the business is from different markets, the currency rate, fluctuations and they in turn affect the net profit of the companies. Un hedged forex can swing the margins.
Currently anyone or all of the above ILLS are plaguing the pharma industry. So what is there for us an investors?
Having mentioned about the sector, it is an industry where there is high entry barrier for competition and new companies to enter the sector. The skills required are also of high order and difficult to acquire easily. The companies are there for long haul and there are no fly by night operators. The quality of the management is very important.
a. Many companies are working hard to adhere to the compliance and overcoming any deficiency observed.
b. The data integrity and systems are improving.
c. The managements are committed and we have seen that some of the companies, who were issued observations like DR Reddys, Wockhardt, Divis Labs are already have got clearances.
d. This is an industry which is for long haul and This is suitable for those investors, who can with stand oscillating pressures .
Do choose the company and stay invested. If you cant chose the company, go for a pharma fund through the mutual fund route
Do contact me for any clarifications.
One of the most entertaining sport is Football. The 90 minute game has the most viewership across the globe. Brazil, the Five times world champions have been struggling in the last season and crashed out of the world cup. Now with the new coach Tite, the team is playing superbly well. Tite has truly transformed the team.
Read this link http://bit.ly/2wQH6U2
Role of a coach.
Coach in any team is the most important man. He is the one, who works out the strategy for the team, identifies the right talent and the best man for the best job. He not only knows the team but also the competition, environment, rules of the game. He is the GO TO man as far as anyone in the team is considered.
Role of a Captain
He leads the team and is one of the talented players. He is instrumental, in implementing the strategies of the coach. He works in tandem with the coach. It is impossible for any team to be successful unless the two integrate well.
After Dunga left, Tite had taken it upon himself to build the Brazilian team and results are so far very good. Players also love to work with coaches like this.
Take the case of Saina Naiwal, who parted with his coach, Gopi chand, has not been having a good run ever since. Recently she has expressed to go back to work him, as her coach. Good players, who want to succeed don’t have inhibitions and Saina, I hope will overcome her bad patch and be successful.
read this link http://bit.ly/2xdbxEf
Similarly, For an investor, no doubt he is he decision maker. But every investor needs a good coach. A coach, who guides and works with the investor, is known as financial advisor. The advisor, helps the investor to formulate his goals derived from his dreams, assesses his risk profile and guides to invest in the right instrument. Like the Coach in any game, it is not a one time activity but an ongoing activity, till the goals are achieved. This may involve, training, skilling, providing psychological support during troubled times and reworking the strategies, as and when required.
Do you have dreams?
Do You have goals?
Do you have a strategy?
DO YOU HAVE A COACH?
You are the Captain, for you money! But with an advisor, you can make your money do WHAT YOU WANT.
I would love to be your coach. Captain are you ready?
Do contact me
Are you the one trading heavily into options? If no then skip this article as it does not make sense to you.
If you trade in options, may be you can read this.
NSE introduces weekly expiry of bank nifty options from JUne 2016
As you know, option premiums is the sum of intrinsic value of the underlying plus the time value of money.
The longer the time to expiration, for a given value of underlying, the premium will be higher. This the premise on which you must read and understand what the change to weekly options can do for you.
With the weekly expirations, the time value of money has drastically come down for a new contract from 28 to 35 days depending on the expiry period or when the last Thursday falls in a month. With the weekly options the time to expiration is 7 days or 5 trading sessions.
Therefore the probability of making or losing money in premium due to time value was higher earlier. Now, because of the premium reduction, due to weekly options, you can consider trading and benefit out of this. However care should be exercised as there is risk of volatility and hence risk of losing the premium paid.
Also the time of buying and selling the options do matter. You can consider this option.
One of the widely traded index option is the bank nifty option. and normal day the fluctuation can be 0.25% to 0.5% and many days it is around 1%. Hence a 1% variation in one day can give you opportunity to trade .
Here is what you do. Let us assume the bank nifty spot is 17500. On the first day of the contract ie. on Friday, you can use a strangle option and buy a put option for a strike price of 17200 and a call option for a strike price of 17800. you can stretch the stike prices so that the premium you pay is managed well. It is possible that you can buy both options with a total premium of 60.
When the bank nifty opens on Monday or Tuesday the effect of 1 to 2% in either direction can give you good premium for one of the options and based on the directions, you can possibly make a decent money . Let us take last Friday, 17th June 2016, 18200 call option of bank nifty was available for 40 and later came down to 22 and 17300 put option was available for 30 and went up to 35. If you had bought them you could have paid Rs 70 though it is higher, as it is difficult to judge the movements on both sides. It is therefore good to buy both these simultaneously.
ALSO Note that both these options are out of the money options and hence they are available cheaper.
Therefore exercise care.
Today when the market opened the put option went to 110 and the call option ended with 12 and you could have got at least 110 from the sale of put of option, even if you don’t sell the call option there by making 110- 40-30 which is Rs 40 and with a lot size of 30 it is 1200. Assuming the brokerage though on the higher side could be 436 leaving with a profit of 764 on an invest of 2100 which is around 30% . I have tried and watched this for the last 3 weeks and there is a possibility of a money play here.
However, take care of the directions of change and movement of the market & the brokerage. Since the time to expiration is very short, you may end up losing the whole money.
The purpose of writing this is to make people aware that there are good opportunities, if you are an option trader and weekly bank nifty has changed the game to T 20 from ODI.
For any clarifications please feel free to contact me.