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India Stocks Drop on Earnings, Inflation Concern; Mahindra Falls

Nov. 14 (Bloomberg) -- Indian stocks fell for a third day, led by automakers, after Mahindra & Mahindra Ltd. reported an unexpected drop in profit and as inflation exceeded estimates.

Mahindra & Mahindra, the nation’s largest maker of sport utility vehicles and tractors, tumbled the most in nine months. State Bank of India slid to a five-week low.

The BSE India Sensitive Index, or Sensex, slid 0.4 percent to 17,118.74 at the 3:30 p.m. close in Mumbai, extending last week’s 2.1 slide. Eleven out of 28, or 39 percent of companies on the Sensex that reported earnings for the September quarter, have trailed estimates as record increases in borrowing costs cooled demand, compared with 47 percent in the June quarter, data compiled by Bloomberg shown.

“The lag effect of the rate hikes is showing on company earnings,” said D.K. Aggarwal, who manages about $100 million of Indian assets as chairman of SMC Wealth Management Ltd. in New Delhi. “Inflation has still not come under control and the European situation remains dicey. Investors are not getting the confidence to put their money.”

India’s benchmark inflation rate exceeded 9 percent for an 11th month, government data showed today, crimping the central bank’s scope to keep interest rates unchanged and shield the economy from the global slowdown. The Reserve Bank of India on Oct. 25 signaled it’s nearing the end of monetary tightening, after raising rates for the 13th time since mid-March 2010.

The nation’s factory output in September expanded at the slowest pace in two years, hurt by record rate increases and a faltering global recovery, a government report showed Nov. 11. Moody’s Investors Service last week pared the outlook for the nation’s banks on concern the slowdown may trigger defaults.

‘Biggest Risks’

“On a three-to-six month view, the biggest risks are earnings downgrades, a further pick up in non-performing loans and currency volatility,” CLSA Asia-Pacific Markets equity strategist Christopher Wood told Bloomberg UTV today.

In August, CLSA reduced its target on the Sensex to 18,200 from 19,500, citing “faster slowdown of growth” and increased earnings downgrades.

The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. declined 0.4 percent to 5,148.35. The BSE-200 Index dropped 0.7 to 2,085.08.

Mahindra plunged 6 percent to 791.05 rupees, the steepest decline since Feb. 8. Net income, excluding units, dropped 2.8 percent to 7.37 billion rupees ($147 million) in the quarter ended September from 7.6 billion rupees a year earlier. Profit, which dropped for the first time since 2009, missed the 7.8 billion-rupee median of 30 analysts’ estimates compiled by Bloomberg. Sales climbed 38 percent.

Auto Earnings

Tata Motors Ltd., the nation’s biggest truckmaker and owner of Jaguar Land Rover, declined 2 percent to 177.8 rupees, its third day of losses. The company reported a 15 percent drop in quarterly earnings, missing analyst estimates, it said after the markets closed. Maruti Suzuki India Ltd., the biggest carmaker, tumbled 3.1 percent to 1,027 rupees, extending this year’s slide to 28 percent.

State Bank fell 2.5 percent to 1,753.1 rupees, its lowest level since Oct. 7. Tata Steel Ltd., the biggest producer of the alloy, slumped 4 percent to 412.5 rupees, extending this year’s loss to 39 percent, the second-worst performance on the 30-member Sensex.

The Sensex has slumped 17 percent this year, narrowing the valuation of its member companies to 14.7 times future profits from 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 10.5 times.

‘Huge Money’

Foreign funds, who withdrew $2.4 billion in August, the most since October 2008, have been net buyers for 11 sessions ended Nov. 9, the longest such streak in four months, data on the website of the regulator show. Inflows from abroad reached a record $29.4 billion in 2010.

“I have been amazed by the lack of foreign selling given that they put a huge amount of money last year,” said Wood. “The Reserve Bank is at the end of its tightening cycle. Hopefully foreigners won’t sell out.”

While Asian stocks rose today on optimism new governments in Greece and Italy will help contain Europe’s debt crisis, the “negative newsflow” from the region may continue, he said.

Indian and Chinese stocks will “outperform from the bottom after the Euroquake hits its crisis point,” said Wood.

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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