Disciplined reading - Chetan Parikh

In a great book “Hedge Hogging”, the author, Barton Biggs, writes about the importance of disciplined reading to investing.

“Recently I read an interview with Charlie Munger, Warren Buffett's al­ter ego. Munger is a great investor and a really smart, wise old guy:

I have said that in my whole life, I have known no wise person over a broad subject matter area who didn't read all the time-none, zero. Now I know all kinds of shrewd people who by staying within a narrow area can do very well without reading. But investment is a broad area. So if you think you're going to be good at it and not read all the time, you have a different idea than I do. . . . You'd be amazed at how much Warren [Buffett) reads. You'd be amazed at how much I read.

-Charlie Munger at the Berkshire Hathaway

2003 Annual Meeting

Reading is definitely my thing, too, and I think you have to read not just business stuff but also history, novels, and even some poetry. In­vesting is about glimpsing, however dimly, the ebb and flow of human events. It's very much about breasting the tides of emotion, too, which is where the novels and poetry come in. Besides, sometimes you have to refresh your mind and soul by consuming some crafted, eloquent writ­ing. When I get home at the end of a business day, after being absorbed in investment babble and dull, plodding writing, replete with trite phrases such as make no mistake, which is my pet peeve, I am stuffed with babble. My gorge rises at the thought of more business carbohydrates. So I sit down with a nice big glass of wine and immerse myself in something I want to read. I always have at least one book going, and my taste is eclectic, but the sine qua non is that it has to be well written. At this moment, I am rereading William Blake's great biography of Disraeli, a complex and intriguing figure.

I am a visile. A visile primarily absorbs information through the eyes by reading. An audile ingests information mostly through the ears, through talking and social interaction. Charlie Munger, too, is a visile. Of course, we all do some of both, but I share Munger's skepticism that someone who doesn't read much can be a really successful investor. I do know a number of people who are very successful traders and specula­tors who don't read anything but the sports page.

One of the biggest, most difficult issues I have is time manage­ment. Receiving and processing information and data in order to have the knowledge to make wise investment decisions is what the profes­sional investor does all day and night. For example, one friend of mine, a visile who has been in the business a long time and has a fab­ulous record, is a truly compulsive but very disciplined reader. By dis­ciplined, I mean that he has a keen eye for junk research and wastes no time on it, but he is continually looking for the pearl of knowledge, the flash of insight that makes the pieces in an investment puzzle fall into place.

Not only does this fanatic read all week long, but every weekend, to his wife's dismay, he comes home with several heavy satchels full of re­search reports and magazines. He gets up early and spends six to seven hours each weekend scanning this mass of material and scrawling notes on it to his analysts and portfolio managers. Perhaps 10% of it he reads and studies carefully. Of course, he also talks and listens, but neverthe­less, this visile gets most of his information by reading. "You get less lies and BS this way," he says.

Another friend, who also has a brilliant investment record and is equally obsessive but very different, an audile, used to read a lot, but now he doesn't read much at all, although he carries around a briefcase full of research, which he paws and shuffles. Yet he still wants to be on every mailing list and becomes very insecure when he thinks you have a piece of research he doesn't. There is research all over the floor of his of­fice. and once last summer, when he opened the trunk of his car to get his golf clubs, I saw great mounds of moldy old research reports that had been there for God-only-knows how long.

Instead of reading, this guy obsessively works the phone. All day long, including weekends and evenings, he makes calls that usually be­gin, "Big guy, what's going on?" Yet in his own way, he is very disci­plined, too, because each conversation is short and to the point, and once he has pumped dry the person on the other end of the phone, he terminates the call with, "I gotta fly." There is no idle chatting. In effect, he has decided that after 30 years of reading research reports, the return on his investment is low, and that the best stuff isn't on paper. So he spends his time gathering information from talking and listening to an eclectic variety of sources.

As for me, although, Lord knows, I spend a lot of time every day chattering with my investment buddies, I am a compulsive reader. Sometimes, getting through my inbox can be compulsions that hurt rather than help. The objective is not to prove how much you can read but rather to unearth insights that lead to money-making decisions.

I find it's almost impossible to do serious reading in the office because there are so many interruptions, so I spend a lot of time nights and weekends reading. Often I wonder if it's all worthwhile or just an addiction. Although I know there is no direct correlation on a day-to-day basis between reading and making money, somehow I feel less guilty if I read everything in my in-box. As investment managers, we must control our reading by being disciplined and ruthlessly se­lective rather than let it rule us. I want original information or analy­sis about the state of the world, an industry, or a company that is going to help me make money. Change at the margin is what moves markets. Of the written material I receive each day, 90% is worthless to me because it either repeats what I already know or is irrelevant. The odds are almost zero of my finding anything new in one more 20-page report on GE. The problem is that I can't winnow out the 10% without glancing at the rest, and no secretary, no matter how smart, can do it for me. When I do find a report or an article that has truly fresh, at-the-margin thinking, I try to take the time to read it carefully. I find underlining helps.

So here is what I read, for better or worse. Obviously, a lot of topi­cal, random stuff comes up, but what follows is my regular fare. Every day on the train going to work I read the New York Times and the Finan­cial Times. I always read Thomas Friedman's columns. The FT is excel­lent for corporate news. Later in the day, I try to scan the Wall Street Journal. When I am traveling in Asia or Europe, it's The International Her­ald 'Tribune, which, in my opinion, is the best single newspaper in the world. The Asian and European editions of the Wall Street Journal in some ways are even better than the one in the United States. I am be­ginning to think I should spend more time reading corporate news in newspapers, which at least doesn't pretend to be anything but reporting, and less on brokerage research, which often is just biased reporting of what has already happened. A good read for out-of-consensus content is Kiril Sokoloff's What I Learned This Week. It has to be taken with a grain of salt because Kiril has a tendency to present only one side of whatever view he is taking. However, he is an original thinker.

Each weekend I try to read The Economist carefully. It is unques­tionably the best magazine in the world, and nothing else has close to its global reach. I review Time, The New Yorker, and Newsweek (Fareed Zakaria is excellent) by looking at the table of contents to see what sounds interesting. All three used to be better, and they still have some good pieces, but they have been junked up. I usually look at Fortune. It has been junked up, too, but it has some of the very best, most incisive long articles. Carole Loomis is great. Institutional Investor, Absolute Re­turn, and David Smick's International Economics are on my reading list, too. However, you can go through only so many magazines, because there is so much promotional babble in them. I must confess I am a huge Sports Illustrated fan because the writing is so superb and because I like sports.

We get massive amounts of research and market letters every day, mostly bye-mail. My way of dealing with the sheer volume each week is to focus on about 25 different sources, ranging from Ed Hyman, Jim Paulsen, and Jim Walker to Byron Wien, Steve Roach, and Chris Woods. There is meat to be found in scanning the company summaries issued by serious research firms. I don't disdain by any means Wall Street re­search or Wall Street analysts. They are still valuable to check out ideas with, and sometimes a conversation with them can be very instructive. Our primary research sources are Morgan Stanley, J.P. Morgan (for eco­nomics), Goldman Sachs, Credit Lyonaisse, ISI, Bernstein, Credit Suisse, The Bank Credit Analyst, Merrill Lynch, Intregal Associates, and Bear Stearns. My assistant erases everything else. From time to time I add sources to and delete from the primary list. Otherwise, I would get overwhelmed with stuff I really don't pay any attention to.

I do this because I used to lug around a heavy briefcase full of re­search. I had the bad habit of wanting to reduce the load by discarding paper. I would end up putting aside the really good stuff to read later while I compulsively worked through the junk. I found I was reducing the weight I was lugging, but ending up carrying around, not reading, the meat, which, after a week or so, I would throwaway because it was stale. Obviously, not a best practice.

I don't bother to read most economists (particularly those who insist on being called Dr. Sam or Dr. Eric) and strategists because they tell you only about what has happened, not what will happen. They don't forecast; they just extrapolate recent trends into the fu­ture. They are mostly followers, who revise their forecasts of the fu­ture based on the direction of the latest economic numbers or what markets have done recently. As a result, they are always behind the curve instead of in front of it. They always underestimate the dimen­sions of the swings that economies are capable of. Of course, there are a few exceptions. Dr. Copper is still the best economist I know. Some of my best sources are businesspeople because they give me a flavor of what's going on. And then, of course, there are always those people who are contrary indicators.

It is very hard to read in the office, what with interruptions from phone calls and the inevitable seduction of the screens. E-mails and the Bloomberg are huge distractions and time wasters. Staring at Bloomberg screens is not productive for thinking. Cleaning up your e-mail in-box can easily become another compulsive activity. I find myself responding to trivia e-mail messages instead of thinking. The same applies to voice mails. We have a reading room, almost a library, in our office. Good light, reasonably comfortable chairs, no phones, no chatting of any kind allowed. Without interruptions, you can go through an incredible amount of research in an hour. Nevertheless, the most productive reading time in my day is the 85 minutes on the commuter train.

As an investor, you have to dominate your intellectual intake envi­ronment and not let the outside world control you. You have to be adamant that you make the choice of who accesses you and not be at the mercy of others. The conventional wisdom now believes that the Internet and e-mailing are brilliant, time-saving inventions. They can be, but as noted earlier they can also be huge distractions. We all tend to cite studies that confirm our prejudices, so here's mine. A recent study of 1,000 adults by the University of London found that habitual e-mailing and text messaging reduces intelligence and intellectual pro­ductivity more than being a regular pot smoker. Most office workers, the study found, are seriously e-mail addicted. A third of them are so totally plugged into their screens that they respond to an e-mail imme­diately or within 10 minutes. One in five routinely interrupt a meeting to answer an e-mail.

The study found that the average reduction of intelligence from e-mail interruptions was 10 IQ points compared to 4 points from smoking cannabis in the office. A loss of 10 points is associated with missing a night's sleep. Of course all three are temporary. The other fascinating finding was that women are less affected than men. The av­erage IQ decline for women from e-mail addiction was 5 points whereas for men it was 15. In other words, women are much better than men at multitasking.

"It's not just reading but reading smart.”

Cost cuts, higher prices spur profit

Profit growth was much sharper than sales growth in the 3 quarters of FY07

Massive cost cuts, buoyant sales and improved price realisations accelerated Corporate India’s profit growth in the first three quarters of 2006-07.

A study of 808 companies (excluding oil & gas, software, banks and non-banking financial companies) shows that profit growth in these quarters was much sharper than sales growth. Further, the growth in bottom line was much higher in those quarters in which sales outpaced the rise in the cost of production.

While sales increased 28.24 per cent during the quarter ended December 2006, the total cost of production rose 25.79 per cent, indicating that the latter rate is 284 basis points (bps) lower than the former. As a result, net profit jumped 53.66 per cent.

In the second quarter, while sales rose 27.9 per cent, the increase in production cost was lower by 112 basis points at 26.8 per cent. Thus, net profit surged 35.7 per cent.

In the first quarter, sales were up 27.39 per cent, while cost of production rose 26.59 per cent, 80 bps lower than the former. Profit shot up 40 per cent. A Business Standard Research Bureau study shows that the share of cost-cutting in bottom line was 16.6 per cent in the first quarter, 25.74 per cent in the second quarter and 40 per cent in the third quarter.

In other words, while net profit, in absolute terms, increased by Rs 7,752 crore in Q3, the total cost of production was lower by Rs 3,100 crore (See ‘Methodology’). In Q2, savings on account of lower growth in the cost of production stood at Rs 1,329 crore compared with Rs 5,163 crore increase in net profit. In Q1, savings amounted to Rs 844 crore vis-a-vis the absolute rise of Rs 5,099 crore in net profit.

The study also attributes the rise in profit to savings in other costs, which include salaries and wages, interest and general administrative expenditures. However, raw material costs, which galloped past the sales growth, remained a major concern.

The increase in input costs was higher by 161 bps compared with the sales growth in the third quarter, 338 bps in the second quarter and 48 bps in the first quarter. As a result, raw material costs were higher by Rs 3,283 crore, Rs 3,340 crore and Rs 879 crore in the first quarter, the second quarter and the third quarter respectively.

The corporate sector saw a rise in tax provision in all the three quarters as profits surged. The tax provision was higher by Rs 210 crore in the third quarter, Rs 172 crore in the second quarter and Rs 194 crore in the first quarter.

More than half of the 808 companies studied managed to save on total costs during all the three quarters. Over 60 per cent of them made saving on other expenditure. And, about 50 per cent firms effected saving on interest and salaries/wages. Only 40 per cent of the companies saved on raw material tax provision.

One-fourth of the sample or 197 companies registered decline in net profits largely because of higher cost of production. Of this, the total cost of production was lower for 38 firms, while for 88 companies raw material costs were lower. However, 103 firms managed to save on other expenditure, and another 132 outfits showed a growth in sales income.

Further, of the 45 sectors studied, the sales growth rate of 29 per cent was higher compared with the growth in the total cost of production in the third quarter. The sales growth rate of 24 sectors was higher in the second quarter and of 28 sectors in the first quarter. However, the growth in raw material costs was higher than the sales growth for 26 sectors in the third quarter, for 30 sectors in the second quarter and 22 sectors in the first quarter.

Cement has done well in all the three quarters with net profit growth of 264 per cent in the third quarter, 145 per cent in the second quarter and 244 per cent in the first quarter.

The sales growth rates ranged between 40 per cent and 53 per cent, while cost of production moved between 20 per cent and 25 per cent in the three quarters. This shows that cement companies benefited from cost-cutting and higher price realisations.

Sugar companies suffered a severe setback on account of lower prices with 8 per cent decline in sales in the third quarter and a modest 4 per cent sales growth in the second quarter. However, raw material costs rose 14.5 per cent in the third quarter and 2.08 per cent in the second quarter. The result was obvious: bottom lines of sugar companies declined 17 per cent in the second quarter and slumped 53 per cent in the third quarter.

The first quarter offered a different picture. Net profits of sugar companies zoomed 113 per cent on the back of 33 per cent surge in sales, though there was 30 per cent rise in raw material costs as well. This was because there was buoyancy in prices in that quarter.

Methodology

The study is based on a sample of 808 companies that have posted profits in the last six quarters.

The study excludes the finance, software and services sectors, which do not use raw materials for production purpose. Oil & gas companies have also been excluded as the government controls the pricing power for oil marketing companies. In the third quarter, profits of state-run oil companies increased largely on account of oil bonds.

Savings on cost of production were calculated by applying the cost-to-sales ratio of the previous corresponding quarter to the current quarter. This was done to find out the cost of production for the current quarter based on the cost-to-sales ratio for the previous corresponding quarter. The study shows that the ratio was higher in all the previous quarters and lower in the quarters under review.

Had the cost-to-sales ratio during the quarters under review been higher or the same as the year-ago quarters, the cost of production would have been higher. In such case, bottom lines of these firms would have risen 27.3 per cent in the third quarter, 24.9 per cent in the second and 31.5 per cent in the first. However, they posted net profit growth of 53.7 per cent in the third, 35.7 per cent in the second quarter and 40.1 per cent in the first.

The total cost of production-to-sales ratio was lower at 82.51 per cent (84.11 per cent) in the third quarter, 83.03 per cent (83.76 per cent) in the second and 82.35 per cent (82.87 per cent) in the first.

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India Bull

A self-confessed ‘India bull’, Samir Arora, fund manager, Helios Capital Management, wants to push India to investors around the world. Issues like high PE and slowdown in privatisation don’t bother him

How do you feel ‘selling India’ to your investors? In your opinion, what makes India a compelling case?
Relative to other choices, India is one of the best markets, not necessarily just the best economy. I say that because in India the choices that are listed on the stock market are of a much higher quality and much more diversified than the choices in other markets.

Indian stocks actually represent every sector of its economy. If somebody wants to bet on the consumer industry, infrastructure, media, private sector or public sector, it's all available in India in the listed format. Not so in Russia, Brazil or China. Over the years, I have been an India bull and was always overweight on India. But now, I don't have to sympathise with any other market and am 100 per cent in India. And I want to personally push India to the world. I think India sells well and works well. When we articulate our views, people listen.

Earlier, we would sell India on a bottom-up basis. We used to say that the companies in India are good with high ROEs. In the last three-four years what has changed is that people can go and push India at a country level and say that you need to have an India strategy.

People would initially just buy an emerging markets theme leaving it to the fund manager to be underweight or overweight in, say Korea or Taiwan. These investors did not choose India vis-à-vis another country. In the last few years, India has moved into the big picture acceptance. Now even a retail Japanese or American, investing in a fund, would consider an India dedicated fund and thereby go for an independent India allocation.

What's your view on the statements referring to India's PE being higher vis-a-viz other emerging markets?
The Indian story is bigger than just declaring that its PE is two points higher than another market.

Many say that India's relative PE to Asia is the highest, therefore it’s a sell. They don't care that India or the world has had a three-year commodity bull run. So commodity companies have done well but their PEs are low because in commodities when the stock prices are at a peak, PE is not the highest but the lowest because earnings have gone up. In fact, normally in commodity companies you buy when the company is making a loss. Because then you hope that they can't make more losses, the capacities will be shrunk and all that. So by definition, the commodity driven countries will have a lower PE at the height of their bull run.

India will have a high PE at the height of a bull run because it has more of everything and not just commodities.

Globally, some sectors are generically low PE sectors — oil and gas, commodity, paper, chemicals — and others are high PE sectors — consumer, pharma and software. India has the lowest weightage of generically lower PE sectors and the highest weightage of the generically higher PE sectors vis-à-vis the other emerging markets.

So just saying that India’s PE is high makes no sense. If you remove software, MNC and certain other stocks which other countries do not have and adjust for it, the PE difference would look much less stark. If you remove Infosys, India's PE will go down by 0.5.

Let's say you come and tell me that I cannot invest in India at 17 PE. I will ask you what you are comfortable with. 15 PE? Then I would say, don't invest in Lever, Infosys or Glaxo. Now take the rest of the companies and choose.

So the higher price-earning does not bother you?
I would have considered this issue if the bull run in India was driven by local investors. If that be the case, then skeptics could say that the speculators are pumping money into the system and driving up prices and the bubble will soon collapse. But, this bull run is driven by foreign investors who have the choice to invest either in the US or Russia or any other country. But yet they are coming to India. Since this bull run is driven by the foreign investor who has a complete choice, it is more credible in that sense.

We had a large company called DSQ Software that suddenly went away. So we may have Infosys but we also have DSQ Software. What could be the fundamental corporate issues?
Let's take the example of the banking sector. There were 15 banks out of which five or six have gone out of business. Even then, if you would had invested equally in each of them, you would have made money, because the ones that that have gone up, have gone up by 100 times. Dangers are there but so are choices. You can't penalise the country for providing choices. In India, even the investors who themselves are not running companies can participate in the stock markets. But in many other economies, you as a normal stock market guy could not have been a party to it. In Russia, how many billionaires have been created because of oil and gas? But in India, Sunil Mittal did not become a billionaire alone. You could have got the stock at Rs 20. You could have bought RIL and HDFC Bank before they went up 50 times.

In India, the stock market gives you the opportunity to participate in every theme. Indian companies, for whatever reason, go public relatively sooner in their lives. By the way, in the US, nearly 300 companies or more have acted in ways which could have taken them to prison because they had issued back-dated options, which is basically cheating. The point is that corporate governance issues are specific to a country, and India is okay.

Retail investors are cautious with the Sensex at 13,000-plus levels. How should they proceed?
Retail investors don’t have to care about an index. Institutional investors worry that if they don’t put the money in the markets and the markets go to 14,000, investors will ask them why the market went up by 7 per cent and their investments by just 2 per cent. A retail investor does not have to prove anything to anyone. So he may or may not take his time. He can wait three months before accepting the idea that 13,000 is just a number. Who knows the answer to that? Or he can do systematic investing. People are programmed to buy at a correction. When that will happen, nobody knows. Therefore, what we tell people is that you should invest only that much money that when it corrects, you can say I want to add, rather than saying “Oh God! I have to pay my bills and redeem”. We tell people to put only half of what they plan to invest in India.

Put only so much that when a correction comes you view it as a buying opportunity. Warren Buffet had said when you go to a shop to buy groceries and you see that grocery prices have gone down, do you feel happy or sad? Obviously happy. So when stock markets go down, and you are in the age group of 30-50, you are buying stocks and have several years before you sell them. So why do you want the markets to be up today?

Do you think the end of the commodity bull run will affect India?
The stock market is not a zero sum game. Ceteris paribus, the stock market every year becomes cheaper by 20 per cent in India and maybe 5 per cent in the world because Indian earnings grow 15-20 per cent as a market. And nobody in this world is projecting that Indian earnings should decline next year. They will say that 25 per cent will become 15 per cent because the commodity bull run is over. But I think if the commodity bull run is over, India is the biggest beneficiary of that because it is a consumer of commodities.

So how does it matter that two listed companies will have lower earnings and, therefore, on paper will appear that the overall index has lower earnings than before? It will be beneficial for all others because at the macro level, we are the consumers of commodities

Are you concerned about the pace of privatisation in India?
I have heard statements that the government is not aggressive in its privatisation drive. But, I say that India has the best privatisation track record in the emerging markets. People have defined privatisation as saying that the government should sell companies to private or strategic partners or go public. I look at privatisation as privatisation of a sector — how much of the sector is controlled by private companies? India has achieved privatisation of sectors without ever privatising the state-owned companies.

Isn’t the mutual fund industry privatised? Or is it that just because we didn’t sell UTI, we have not privatised it? In aviation, today, 70 per cent of the traffic is carried by private airlines. Insurance and banking? The government has not sold SBI or LIC to any strategic investor, but you can go to a private sector bank or a private insurance player. On the contrary, go to China and look for a private sector bank. You can only go to a state-owned bank which has a 20 per cent foreign holding but which is still run by the government. Is that privatisation?

You can say that the government lost the opportunity to raise money. If it had sold Indian Airlines to Singapore Airlines, they would have raised more money. By privatisation, the government’s role in the economy should come down and that is happening. In mutual funds, it has come down from 100 to 20 per cent but the government has never privatised its company. Every time you allow private guys to come in, they will win a bit of the share from the government. We have achieved it with genuine bottom-up private sector-created companies rather than selling one big company.

In closing, what's the flip side of investing in India? The downside?
It’s a single country. Single country risks are higher than a diversified index. Apart from that, other factors like the whole world corrects and there is another May.

This interview appeared in December 2006 Issue of Mutual Fund Insight.

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Market expected to stay sideways

The market is expected to stay sideways on account of mixed cues. However, a correction cannot be ruled out.

The benchmark Sensex witnessed a 183-point (1.26%) correction in the week, from 9 Feb – 15 February 2007. It had touched an all-time of 14,723.88 on 9 February 2007.

A consistent rise in inflation has raised analysts' eyebrows. As per the latest data released on Thursday, India's wholesale price index rose to 6.73% for the week ended 3 February 2007, due to higher food and manufactured product prices.

The Indian government said it was cutting the retail prices of petrol by Rs 2 per litre and diesel by Re 1 a litre. This will put pressure on refining companies, impacting their profitability.

The banking sector is also expected to remain under pressure following the latest 50-basis-point increase in the cash reserve ratio (CRR) by the Reserve Bank of India (RBI). CRR is the percentage of banks' total deposits they have to keep with it.

Volatility is expected to remain high in the week, ahead of the derivative expiry for February, which is scheduled on 22 February 2007.

The market is keenly awaiting the key event, that is the Union budget 2007. It will take direction based on what announcements are made at the annual event.

Hindustan Lever (HLL), Blue Dart Express, SKF India, FCI OEN Connectors, Clariant Chemicals (India), Wockhardt, Astrazeneca Pharma India, Gujarat Gas Company, Bosch Chassis Systems India and R.S. Software (India) will also be announcing their December quarterly results in the next week.

On the global front, the major event scheduled for the next week includes the release of minutes of the last Federal Open Market Committee (FOMC) meeting. The markets will try to find clues about the next move of the US Federal Reserve.

A pessimistic stance by the Fed, suggesting slowing economic growth and easing inflationary concerns, should weaken the US dollar further and assist the already booming global equity markets to appreciate further.

Sensex sheds 183 points

The Sensex declined through the week amidst high volatility. A host of factors like fears of a further rise in domestic interest rates, a large number of IPOs lined up for the next few weeks, rising inflation, heavy unwinding of leveraged derivative positions and a surprise CRR hike were behind the havoc.

The BSE Sensex shed 183.35 for the week ended 15 February 2007, to settle at 14,355.55, while the NSE Nifty lost 41.20 points, to end at 4,146.20.

On 12 February 2007 (Monday), the BSE Sensex plunged 348.20 points, to settle at 14,190.70. It stayed in the red for the entire session as plenty of stop losses were triggered due to highly leveraged positions in the derivatives market. Weak global markets also played spoilsport.

The Sensex lost 99.72 points on Tuesday (13 February 2007), to settle at 14,090.98, in highly volatile trading.

The benchmark index shed 81.08 points, to end at 14,009.90 on Wednesday (14 February 2007). It had plunged to a low of 13,805.36, but recovered on short-covering in the later half of the day’s trading session. The initial fall was because of the Reserve Bank of India (RBI) announcing a surprise hike in the cash reserve ratio (CRR) to 6% from 5.5% in two stages, the first on 17 February 2007 and the second on 3 March 2007, to curb inflation and credit growth.

The Sensex rebounded, after falling for the past four trading sessions, taking cue from firm Asian markets and short covering in derivatives ahead of the expiry of February 2007 derivative contracts on Thursday (15 February 2007). It jumped 345.65 points, to settle at 14,355.55 that day.

The market will be closed on 16 February 2007 for Mahashivratri.

Aluminium major Hindalco Industries plunged 13.81% to Rs 151.90 after its large all-cash acquisition of US-based Novelis for approximately $6 billion, including approximately $2.4 billion of debt. raised concerns about a short-term strain on financials. Novelis posted a net loss of $102 million during the third quarter of 2006. The US company has been plagued by high metal prices.

Reliance Communications (RCL) lost 2.05% to Rs 466.10, after it lost the bid to acquire the fourth largest cellular services provider, Hutch Essar. Vodafone emerged the top bidder with a $19 billion bid. Vodafone's emergence as a top bidder has dashed Reliance Communications' hopes of becoming the largest mobile operator in the country. Reliance Communications added 1.2 million subscribers in January 2007.

ONGC rose 2.25% to Rs 903.50, amid reports that it had initiated talks with Brazil’s Petrobras for offering each other a stake in their respective oil & gas blocks.

Reliance Industries (RIL) rose 1.58% to Rs 1410, after it said that crude production from its deepwater gas block, off the country's east coast, was commercially viable.

Bajaj Auto (BAL) declined 1.16% to Rs 3012. The company is targeting revenues of Rs 10,000 crore for the current fiscal with total sales of 28 lakh vehicles. Bajaj Auto also launched its 200 cc Pulsar DTS-i for Rs 65,497 ex-showroom, New Delhi. It will be the first bike with an oil-cooled engine of 18 BHP power.

Infosys Technologies advanced 0.85% to Rs 2382, on reports of the company scouting for mid-sized BPO companies in Europe, with a value of over Rs 400 crore.

Suzlon Energy plunged 19.71% to Rs 1040, on concerns about a short-term strain on its financials due to plans for a big acquisition overseas. It offered $1.33 billion for REpower Systems AG, trumping the offer by Areva of France by 20%. Suzlon Energy is bidding in consortium with Martifer, Portugal, a steel construction company.

Technocraft Industries India settled at a discount, at Rs 100.90, on the day of debut, over the IPO price of Rs 105.

Theater chain operator Cinemax India settled at Rs 152.35, a slender discount compared to an issue price of Rs 155 per share on 14 February 2007.

On 15 February 2007, Redington (India) settled at Rs 163.25, a premium compared to the IPO price of Rs 113. House of Pearl Fashions, however, settled at Rs 469.40, a discount compared to the IPO price of Rs 550 on the day of listing.

Growth in industrial output in December slowed from its fastest pace in more than a decade, but its persistent strength and rising inflation kept the prospects of further monetary tightening burning. Data released on 12 February showed output rising 11.1% in December 2006 from a year earlier, in line with a median estimate of 10.9% of analysts, but slower than the upwardly revised annual growth of 15.4% in November.

Manufacturing rose 11.9% in December from a year earlier, capital goods production rose an annual 20.2%, while consumer goods output rose 7.4%. The government estimates that the economy will grow 9.2% in 2006/07, backed by rising industrial output and services.

The wholesale price index rose 6.73% in the 12 months to 3 February, higher than the previous week's annual increase of 6.58% due to an increase in food and manufactured product prices, data released showed on 15 February 2007. The annual inflation rate was 3.98% during the corresponding week of the previous year.

On Wednesday (14 February 2007), the Bombay Stock Exchange (BSE) sold 5% stake to Germany's Deutsche Börse for Rs 189 crore, at Rs 5,200 per share. The transaction values the BSE at Rs 3,777 crore ($854 million).

The BSE intends to reduce the stake held by brokers by offering 26% to strategic investors, and a further 25% through an IPO for listing of shares on the exchange. Any single strategic investor's stake is limited to 5%.

The Singapore Stock Exchange has also expressed its desire for a stake in BSE. The Nasdaq Stock Market and the London Stock Exchange are also in contenders for a stake in India's premier exchange.