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Wizard of Dalal Street: Kalpraj Dharamshi’s market journey

In the latest part of CNBC-TV18 interview series, Wizards of Dalal Street, renowned value investor Ramesh Damani caught up with Kalpraj Dharamshi, founder and owner of Dharamshi Securities, to trace his multi-decade journey in the Indian stock markets.

Starting his career in the late 80s, Dharamshi came in contact with big bulls Rakesh Jhunjhunwala, from whom, he says, he picked up a lot of cues on investing as well as trading.

After transitioning from being a broker to a trader and, then, an investor, Dharamshi grew by — as he puts it — “reading, observing and committing mistakes” (he suffered a loss of Rs 1 crore following the September 11-triggered market crash).

But the journey was good to bring him into his own. 

In this interview, he discussed his career, his learnings as well as his outlook on markets and stocks going forward.

Below is the transcript the interview on CNBC-TV18.

Q: Let me take youback in your life. In 2001, twin towers were falling in New York; your portfolio had a personal 9/11. Take me through that month in your life.

A: In September, 2001, we had been in a bear market for almost 16-17 months.

Q: The tech bubble had burst.

A: The NASDAQ tech bubble had burst and along with it, the entire globe, all the equity markets were falling. And I remember, you and me, we were at the Rotunda and somebody from my office called me and said there is an incident in New York and they are showing it live on TV – on CNBC. And we ran to Rakeshji’s office at Vithaldas Chambers.

Q: Rakesh Jhunjhunwala’s

A: Yes. We knew that something had happened which was going to change the world. And next day, I had Rs 1 crore of loss on my trading position and till that time, it was probably my largest loss. But, I had been through enough markets to know that it was also going to cause a capitulation.

The US markets were closed for three to four days. I knew, whenever they opened, bottom will be formed quickly. So, I had that knowledge or I had that premonition and I could visualise, I went all in into the market. I also leveraged, which I rarely do.

Q: Markets can remain irrational long than we can remain solvent. So, in 2001, with the market in such bad shape, the old economy crumbling, what gave you the confidence to be bullish?

A: You had stocks available 8-10 percent yield. I knew valuation wise, I could not go wrong. It was only a question of timing and thankfully, I got it right.

Q: How did you figure out Dalal Street?

A: My dad was in the markets prior to me joining him. I used to do the back office work for him while I was doing my articles and I was very keen on joining the markets. I knew chartered accountancy was not for me. I wanted it as a qualification, so that I could marry a decent girl.

Q: So, take us through your early career? What would you do? Were you a trader? Did you do brokerage? In the early years of Dalal Street, describe the flavour and what was your role in that?

A: I joined the markets late 80s and in those days, there were no investors – there were only brokers and traders, speculators. Unfortunately, we had a set-back in broking – a client of ours defaulted – and so for four or five years, I had blinkers on till the Harshad Mehta bull market, it was all broking, broking, broking.

So, my career was broking, trading and then evolving into an investor. Of course, the trading has not stopped, but the investing part is now much bigger.

Q: What were the early influences in your life?

A: In the mid 90s, I met Mr Warren Buffet — through books of course — and that opened up my eyes. I decided broking had to be done properly. I asked my friend Arvind Joshi to join me.

We started Value Quest Research in those days and as we started researching the market properly, in the next two, three years and in my course of becoming a broker I was visiting all the high net-worth individuals (HNI) and I came across Rakesh Jhunjhunwala.

Q: An early influence in your life?

A: Absolutely, and a tremendous influence. Rakeshji is totally transparent. He shares everything with everyone. So, it was a tremendous learning experience for me to see how it is done.

Reading about it is one thing, but to see it being practiced on a large scale, your horizons broaden, your risk taking ability goes up, you are able to scale up your trades, you are able to scale up your investments, you are able to size up opportunities better and to apply that theoretical knowledge, that is what helped. So, in the early years, I would say, it was Arvind’s research an Rakeshji’s influence.

Also, he made me or through him, I met a lot of the smartest people in the market. I met you, I met Radhakishanji, I met a whole bunch of people.

Q: And you all contributed to each other’s lives?

A: Absolutely, we are all ‘market ka keeda’.

Q: But, you said that the early influences were Rakesh, but give me one or two things that helped you figure out your own thought processes as an investor.

A: One thing Rakeshji and Radhakishanji, I remember, we were having a drink in the Harbour Bar and I always keep asking Radhakishanji about his style – what he was doing.

Q: That is of course, Radhakishan Damani.

A: RK Damani. And without asking at least five times, he would not come out. And one day he said, “Trading may be only paise 5-10 of my wealth as of now, but without that 5-10 paise, the other 90 paise would not come.” So, that kind of clicked. So, you earn and then you deploy it as investment and that is how you grow rich. And these were the smartest.

So, what we did – me and Arvind – was study how the richest people had made money through the market – how they did it, their methods.

Q: You really did that? You actually went through a list of 10 people and how they became rich?

A: Absolutely, the three ways of learning are reading, observing and committing mistakes yourself. So, I have had my fair share of mistakes. I also read and I also observed and observing firsthand at that close quarters, I was privy to Rakeshji’s thinking, I was privy to Radhakishanji’s thinking.

Q: How did you become friends with them? I mean you were a Kalpraj Dharamshi, a new entity broker. Rakesh was already a larger than life figure. How did you strike up a friendship?

A: I do not know, it was friendship at first sight and he is a large hearted man and he took a liking to me. I do not know, you can ask him probably.

Q: What were your first initial ideas where you actually bet your money and how did that work out?

A: Coming from my background in broking and the setbacks I had early on and surviving the 90s – 90s was a very bad period in the market and in the 90s you had a lot of fly by night operators – all kind of shenanigans in the market, SEBI had just been formed in 1993 and till the regulation was in place a lot of things happened in the market where people burned their fingers badly.

So, having survived that, I had that conservative gene in me. It was all MNC investing till that point in time, till I saw people making big money in other kinds of stocks also. So, in the earlier years it was all Cadbury, Colgate, Castrol, digital equipments.

Q: One of the finds that if I am distinguishing about you, is that you keep a trading portfolio and keep an investing portfolio. Keeping those two are different, it is trying to lick your elbow, it is almost impossible. How do you do that?

A: It is difficult and sometimes you end up making mistakes, which turnout to be costly. The thing to do is separate them mentally in your mind as well as physically to keep to separate accounts, so that the revenue department also does not have any issue with it.

You keep your trading separate and you keep your investment separate. And never trade in the stock in which you have invested. So, if you have invested in Infosys, do not trade Infosys for whatever percent. You might think at some point in time Infosys is going to react 10-30 percent. Just hold on to Infosys, if you want to hedge, do it in the F&O and do not mix the two. That is the way I found that you are able to segregate the two.

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