New Delhi: It is 7pm and Connaught Place, the heart of the nation’s capital, is filled with window-shoppers and office-goers heading home. Meanwhile, K. Girish is headed in the opposite direction: his workday is just starting at India Web Trade.
After a quick scan of news headlines in the US and crunching numbers coming in from the stock market there, Girish makes a list of US stocks that can be bought and sold during the evening.
At 8pm here, trading at New York Stock Exchange opens and the action begins for Girish, whose transactions are being made on behalf of Hold Brothers, a hedge fund with its home office in Jersey City, New Jersey, just across the Hudson River from Manhattan.
Girish and his colleagues are busy because Hold Brothers has outsourced research and subsequent trading decisions to India Web Trade. Hold Brothers provides the money for trading and gets a cut of the profit India Web’s traders make.
Hedge funds are similar to mutual funds in that they pool money from a clutch of investors and look for the best deals. But hedge funds are largely unregulated and tend to take more risks than, say, mutual funds in pursuit of higher returns, often using proprietary trading models.
“There is no outbound remittance of money in the whole process. At the end of the month, traders take away their portion of profit, ranging between 20% and 50% (average share is Rs27,000)”, says Shivaz Rai, managing director of India Web Trade. He declined to disclose terms of profit-sharing between India Web and Hold Brothers.
With no money being actually remitted from here, Indian regulators have no issue with the trading itself, says Rai.
It is unclear if other US funds are also shifting some of their trading desks to companies like India Web. While Rai says he is unaware of similar businesses here, he thinks they probably exist. Several brokers and mutual funds executives contacted by Mint said they weren’t aware of similar trading desks. Rai now manages a team of 15 and says he is able to generate monthly returns of between 3% and 5% on a $10 million trading fund that Hold Brothers has set aside in the US for its Indian partner.
The deals executed from India Web’s Delhi office go straight to New York Stock Exchange, where Hold Brothers organizes trading rights and the money to pay for India Web’s transactions.
The architect of the arrangement between Hold Borthers and India Web Trade is the boyish looking Rai, a 30-year-old double major in mathematics and economics from the prestigious Univeristy of Chicago.
Rai returned to India in early 2005 after a six-year stint with different hedge funds in the US. During his time there, he picked up on the idea that hedge funds could be business opportunity as they were open to outsourcing research from other places. Some hedge funds had done it successfully in Russia and Brazil.
Back in India and leveraging his contacts in the hedge fund world, Rai started working in June 2005 with the hedge fund run by Hold Brothers.
India Web puts through short-term deals, which are mostly closed out on the same day. “We track 500 stocks,” says Rai. India Web’s trading is made up of young men who came straight out of college, with no previous experience in the stock market.
“I’m looking for an analytical mind, one that understands patterns,” says Rai. Some of the interview questions that he uses to select traders are based on card games, and meant to test individual ability in making calls based on probability.
But it’s not just an analytical mind that makes a trader. “Successful guys are mentally strong,” declares Rai.
Successful traders should be able to attach themselves to just the trade and keep the clutter at bay. The chosen few are put through three-six months of training, including on-the-job training.
Rai has hired 23 people over the last 18 months, of whom eight have left. “The key is training,” says Rai, noting that it is what allows a trader to take split-second decisions during trading hours. On an average, his traders earn between Rs 10,000 and Rs 70,000 per month, says Rai.