India Sensex Drops to Six-Month Low; Hero Honda, Mahindra Fall

Indian stocks fell, with the benchmark index poised for its lowest close in more than six months, amid concern rising costs will hurt company profits.

Hero Honda Motors Ltd., a motorcycle maker, lost 2.7 percent, extending its drop this year to 22 percent. Research costs will rise after a split with its Japanese partner, Bloomberg UTV reported today, with saying where it got the information. Central bank Governor Duvvuri Subbarao today said the country’s challenge is to manage inflation without hurting economic growth. Mahindra & Mahindra Ltd., a sport-utility vehicle producer, slid to its lowest since September.

“The macroeconomic headwinds will have an impact on the company earnings,” said Gaurav Dua, head of research at Mumbai- based brokerage Sharekhan Ltd.

The Bombay Stock Exchange’s Sensitive Index, or Sensex, declined 141.09, or 0.8 percent, to 17,896.10 at 12:09 p.m. in Mumbai. The gauge, the world’s worst performer this year after Egypt, is at its lowest level since July. It has lost 15 percent from a Nov. 5 record, exceeding the 10 percent slump that signifies a so-called correction to some investors.

Companies on the Sensex are valued at an average 17.2 times estimated earnings, down from last year’s high of 21.5 times in March, according to data compiled by Bloomberg. The S&P CNX Nifty Index on the National Stock Exchange lost 1 percent to 5,343.15. The BSE 200 Index declined 1.1 percent to 2,200.70.

Hero Honda

Hero Honda slid 2.7 percent to 1,540.95 rupees. The company will retain the rights for its Splendor and Passion motorcycle brands after Honda Motor Co. exits the venture, the New Delhi- based company’s Chief Financial Officer Ravi Sud said. Honda Motor agreed in December to sell its 26 percent stake in Hero Honda to local partner Hero Group.

Mahindra & Mahindra dropped 3.8 percent to 643.6 rupees.

The yield on India’s 11-year bonds, the most-traded government debt, held near its highest level in two months on speculation accelerating inflation will prompt the central bank to raise borrowing costs further.

The Reserve Bank of India’s Subbarao raised the benchmark repurchase rate by a quarter-point to 6.5 percent on Jan. 25 and urged the government to take steps to control spending on subsidies that is adding to inflation. The Sensex has fallen 6.6 percent since then.

Bharati Shipyard Ltd. fell 3.2 percent to 153.25 rupees, set for its lowest close since November 2009. Third-quarter profit dropped 30 percent and sales growth of 8 percent was the the slowest pace since the second quarter of 2006.

Global funds bought a net 2.24 billion rupees ($49.2 million) of Indian equities on Feb. 4, according to data on the website of the Securities and Exchange Board of India. Overseas investors sold $1.4 billion more shares than they 12bought in January, the first monthly outflow since May.

India’s economic growth and corporate earnings lured foreign investors to buy a record $29.3 billion of local equities last year and made the Sensex the best performer and most expensive among the world’s 10 biggest markets.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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