Indian stocks fell, dragging the benchmark index to its lowest close in seven months, on concern rising costs will hurt company profits and curb demand.
Hero Honda Motors Ltd., the nation’s biggest motorcycle maker, declined to its lowest level in 15 months. Research costs will rise after a split with its Japanese partner, Bloomberg UTV reported today, without 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 the most in eight months.
“The macroeconomic factors are getting punctured and that will have an impact on corporate earnings,” said Mumbai-based Mehraboon Jamshed Irani, head of the private client group at brokerage Nirmal Bang Securities Pvt. “We could be heading towards a period of slower growth and corporate earnings could be hit. Investor sentiment is very weak.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, declined 261.49, or 1.5 percent, to 17,775.70 at the 3:30 p.m. close in Mumbai. The gauge, the world’s worst performer this year after Egypt, closed at its lowest level since July 8. 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 16.2 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 1.6 percent to 5,312.55. The BSE 200 Index declined 1.8 percent to 2,186.82.
Hero Honda slid 4.8 percent to 1,506.95 rupees, its lowest level since November 2009. 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 sank 6.2 percent to 627.7 rupees, its steepest one-day drop since May 19.
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 are adding to inflation. The Sensex has fallen 7.2 percent since then.
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.
Bharati Shipyard Ltd. plunged 5.5 percent to 149.6 rupees, its lowest close since November 2009. Third-quarter profit dropped 30 percent and sales grew 8 percent, 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 bought 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. That made the Sensex the best performer and most expensive among the world’s 10 biggest markets.