The Hindu Business Line : Talking stock

As long as you have some money in your bank account and can take delivery up to Rs 5 lakh when a share starts falling after you buy it, you can handle it, particularly when you know the price will go up in a few days.

The obvious question to ask a day trader of equity is how he handles the pressure of his decision going wrong. Mahhendra Kumar's response is a smile. "You have to think deeply on this aspect before entering the market. So many times I've noticed my heartbeat changing; I can decipher it."

Fortunately for him, he has been doing meditation for a long time, perhaps, longer than his 10 years in the equity market. On a good day, he does a trade of up to Rs 1 crore, buying and selling shares. But discipline is something he seems to have conquered with ease. As also keeping in check the two devils of equity investment... fear and greed.

Mahhendra Kumar, Chennai-based day trader.

"As for fear, as long as you have some money in your bank account and can take delivery up to Rs 5 lakh when a share starts falling after you buy it, you can handle it, particularly when you know the price will go up in a few days."

On greed he says, "I fix my target and if that rate comes, I simply get out."

When you point out that this is easier said than done, Chennai-based Kumar responds, "In the stock market it looks very easy to make money, but it is really very difficult. Of late I've decided to keep the profit target at Rs 2,000 to Rs 3,000 a day. The moment I make that money, I either get up and go or remain a mere spectator."

But doesn't this require a lot of discipline?

"Discipline is a must if you want to trade in the market; you also have to remember that everyone makes mistakes; but repeating the same mistake is unforgivable."

Even though his overall experience in the equity market has been positive, the 40-year-old trader has a family business in jewellery to fall back on if anything goes drastically wrong with his trading.

Kumar got interested in the stock market around 1995 after the Harshad Mehta scam and a friend, who was a broker of the Madras Stock Exchange, gave him access as an authorised assistant. "Those days the MSE was doing well and I had a very good clientele. But engrossed in executing big orders, I didn't have the time or inclination to do anything on my own. And the brokerage (1.5 per cent which he shared with the main broker) was good too."

But when the NSE came into existence, the brokerage was reduced to 1 per cent and gradually the regional stock exchanges faded out, he lost his clients. He then started buying and selling on his own. "This was around 1997-98. It was all very transparent and the volumes were huge."

Recalling the initial bad times he faced in the hazardous profession of a day trader, he says with a grimace, "In those days we used to think we were big heroes and we would go against the trend of the market and lose a lot of money." Cautioning his tribe, he says, "You should be on the right side of the market; if you go in the opposite direction you'll burn your fingers because you can't be smarter than the market. Always remember that the market is the ultimate hero."

Another bit of advice he offers is "never to go short while trading. If you go short, under pressure you're bound to cover if you don't have the shares for delivery. But if you're long, you can take delivery if the price falls, but for this you need money."

The first share he bought was Tisco at Rs 690. Even though he lost in this counter, "I consider myself wise for selling at Rs 550 after two months, because it went down further." But the two shares where he made money were Krone Communications (he bought 6,000 shares at Rs 65 and sold between Rs 108 and Rs 118) and VXL Instruments. This was around 1999-2000, when he bought companies with small equity and good management.

In 2000 came the software boom. "The prices kept going up and I found it very easy to make Rs 5 or Rs 6 every day in the shares I traded." These ranged from Satyam to Integrated Enterprises, Pentafour Software, Silverline, DSQ Software and TV 18. Then came the Ketan Parekh scam and the markets crashed and so did his scrips. But he is not bitter about his losses during this period because "I only lost whatever money I had made from the market. All along, I had never touched a single paise from my business."

But the fact remains that the profit of a "couple of lakhs" that he had made during six months of boom was lost in a span of 14 days.

Around 2001 Kumar decided it was "not wise to take a long-term view of the market. Every day, whatever you get, take it home."

So he started trading and continues with it now. He goes to the broker's place at 9.55 a.m. after a brunch — during trading hours he doesn't like to leave the terminal for lunch — and makes a thorough study of the previous day's top losers, gainers and top trades. "That shows me a pattern for the day," says this veteran trader, who feels that "constantly looking at the monitor, after a certain stage you get to know that accumulation is taking place in a particular counter. Sometimes the operators take a share to Rs 100, bring it down to Rs 85 before taking it up to Rs 120. He has recently learnt from a friend, "who is only 20 years old but very sharp and intelligent, how to interpret accumulation taking place in a share. Take for example Satyam; I punch in an order for one share at Rs 351 and one more at Rs 352 and watch how fast that is bought. That tells me the buying pattern."

Ask him about his favourite share and he says, "I don't have any favourites and it is not wise for investors or traders to get attached to their shares." He doesn't have a long-term portfolio either and once he makes 10 or 12 per cent profit he exits and this, he says, is possible in a week or two!

So does he book losses too in the same manner?

"Not really. If the counter is really good, one should not worry about the fall. My experience tells me that some day or the other you will definitely get your rate, so wait. There's no point in booking a loss unless you're convinced the stock is looking really bearish."

But he did get caught on the wrong foot in TV18; "I took delivery and stayed in it with the hope it would go up, but it crashed." L&T is another share that has been Kumar's nemesis. "Whenever I go long, it comes down, and when I've shorted, it's gone up. So I've decided to leave it because the operator in that counter is too smart for me to handle."

But aren't there operators in most counters?

"Yes, but their strategy differs. For instance, an operator in Biocon is very different from one in Satyam. To be successful, you should be able to judge the modus operandi of the operator." He says that in a share like Reliance Industries, "the operators can't do much, because there are various forces present; institutions, big players, mutual funds, etc. This is a share that is difficult to manipulate... one or two operators cannot take it up or down."

His profits are used for his daily expenditure. "I make good enough money to live comfortably. And of course there's my family business, too." It is being managed by others and doesn't require his time or attention.

When the transaction tax was first announced he decided to quit trading, but "luckily the FM reduced it." Anyway, he plans to quit trading after a couple of years. "I'm already 40 and sometimes, after the market, I feel very exhausted." But before he retires, he wants to become a jobber. Inspired by the article `The Jobbers of Mumbai' in Life (Aug 16, 2004) he is on the prowl for a broker who will not charge him brokerage and allow jobbing on a profit-sharing basis. "But I'm told there are no such brokers in Chennai. Maybe I'll go to Mumbai and find out if any broker would like to start this here. I'm ready to take this initiative by paying a deposit, as I'm sure there are many others who are interested."

Picture by Reuters

Want to share your experience as an investor? Write to rasheeda@thehindu.co.in

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