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Wednesday, August 15, 2007

A real winner in day trading

From a teenaged investor drawn to the `exciting' markets, Nirmal Kotecha has grown into an astute day trader with a nose for booking profits.

If one needs a face to illustrate the present bull market phase of Indian equity, and depict the transition from long-term passive investors to agile, nimble footed, smart traders, Mumbai-based Nirmal Kotecha of Nirmal Investments would fit the bill. It is without batting an eyelid that he says: "The sky is the limit" to your query on the annual returns that equity investors can expect. He quantifies it by adding, "Hundred per cent." When you ask if that is achievable he says, "Yes, I`ve done it." And then comes the shocker, uttered ever so casually, "Last year it would have been 700 per cent."

Even though both the Sensex and the Nifty are at lifetime highs and scaling new peaks every other day, he is not afraid that the indices might suddenly crack. And that's because he's a trader who doesn't believe in taking delivery for the long term. But he does feel that at this point investors and traders have to be careful; "you have to be on your toes and watch the market moves because you never know what might happen... like the London bomb blasts. But then these are not events that you can anticipate or control."

So on such occasions would he close his positions?
"Yes, if they are trading positions. But if it is an investment then you have to see if the event will have a long-term repercussion on India. For instance, something going wrong with India's software sector would have a much greater consequence for India and Indian equity than 9/11."Kotecha, who is 28, started investing 12 years ago as a 16-year-old student when his father, an LIC agent, also ran a medical shop in Kochi. "In 1993, during the Harshad Mehta time and after the scam, a lot of young people would get together near our medical shop and talk about the stock market. There were heated debates on various stocks and how he had used these stocks and I found this talk quite exciting."

With interest in equity kindled, the young lad started applying for IPOs. "They would come at Rs 10 and open at Rs 14 or 15." Slowly he started visiting the Kochi Stock Exchange and then the trading floor and became a sub-broker at 18, while he was doing his B.Com. Kotecha never felt like taking up a job or any other vocation "because I strongly felt that since I had passion for stocks this should be my profession... basically I had a trading mindset." He recalls that in those days there was craze for finance and gems and jewellery companies, and 100 per cent EOUs (export oriented units). "But since I had jumped into this profession without adequate training or hard work, like any ordinary person I too ended up losing in a bad way." With debts mounting to a couple of lakh rupees — big money for a teenager in those days — "I lost my confidence and thought this is absolutely the wrong career choice for me and I'd have to look for some other profession."

His brush with equity would have ended but for his dad making it clear that since it was his money that the son had lost, he wouldn't part with more to settle his debt. "He said you're on your own; I had money of friends and relatives that I had to return and ended up borrowing a small sum at even 4 per cent monthly interest. It was a desperate situation and I had to come out of it." So the sub-broker's business could not be wound up and slowly he started understanding the market dynamics. "The advantage of a young age is that not only can you handle tension better but you also learn quickly and adapt more easily."

But his age was a handicap when it came to advising clients on their investments. "Even though I worked hard and acquired information on companies and the stock market by reading newspapers and books, particularly on successful investors and traders in the US, and did my own analysis, I'd tell them I've heard this or that about a particular stock, and they'd buy those stocks. They thought I was too young to be taken seriously." He too started investing; the first challenge was to build up a capital after paying his debts. But the astute youngster did that by "quietly listening to market signals during the 2000 technology boom. It was then that I had my first real experience with momentum trading," he says. Technology stocks — particularly the K-10 stocks — provided him an opportunity. "In those stocks the volumes and price action used to be phenomenal; I've seen Himachal Futuristic going from Rs 30 to Rs 2,500, and have traded in and out of it maybe a million times."

He moved between Infosys, Satyam, Rolta, Silverline and other technology stocks with the agility of an expert "several times a day through the week." He makes quite a startling, and yet relevant statement, when he says, "Like alcoholics need an Alcoholics Anonymous... traders too get a high while trading. And when you keep trading all the time it gets into your blood, like alcohol addiction. Just as an alcoholic drinks every day, I trade every day." Earlier when he went for a holiday with his wife, he would promise her he wouldn't make any calls about the markets. "But when I received calls, I would try to find out what's happening!" Now of course the Net allows him to do that from his laptop and his wife no longer minds this intrusion.

Kotecha explains how momentum trading is governed by volume and price action and is "not confined to one stock but goes across the board. In those days 100 or 200 IT scrips were listed, and new ones were coming in. The top 50 would be up by a certain percentage so you gauged the momentum and went along with the flow." Sometimes he tried to go against the "the current and burnt my fingers, but it helped me learn. As Himachal went up from Rs 30 to 650 and 1,300, I kept trading in it. Weekly settlements helped too." Over the years this trader became so successful that for the last three years he has no clients and trades on his own, and says with a grin, "Markets are kind to me these days." In his trading life, Kotecha has identified some multibaggers too and though he doesn't believe in holding on to shares for long term, "if I'm convinced a share is a multibagger, I hold on. Take Praj Industries; I bought it at Rs 18 initially and it is Rs 800 today. Of course I sold at Rs 40, bought it at 110 and sold again at Rs 140 and so on. The same with HDFC Bank which I had been allotted in the IPO, as also Aptech."

On the overall equity outlook he says: "It looks really good; India has never had this good a time on the economic front and we're headed for better times and the macro developments will be reflected in the stock market." He rules out a scam "because today safeguards are in place and with the kind of funds coming in now, one player can't have an impact beyond a level because the market depth has increased. Also, both SEBI and the exchanges are watching." But he is worried at the number of retired people playing the markets these days. "This is the worst place for them. I would discourage it because if I lose all my money today, I have the chance to make up somewhere else. But if they lose their lifetime's savings it would be the biggest blow. I say this because I know money can evaporate in the market and despite my success I know that I keep making mistakes regularly!" But against huge success, he has also seen times when "the market crashes and if it loses 10 or 15 per cent and you've lost only 5 per cent you are happy; so everything is relative."

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