Bearish bets on Hero Near nine month Month high

Futures traders are the most bearish on Hero Motocorp Ltd. in nine months on concerns sales of India’s largest two-wheeler manufacturer will slow amid competition from overseas rivals.

The futures settled at 1,817 rupees, a 44-point discount to the underlying shares that’s near the widest since April, data compiled by Bloomberg show. Open interest, or the number of outstanding contracts held by traders, totaled 18,217 at 4:19 p.m. in Mumbai, the highest since June, the data show.

Sales of two-wheelers in Asia’s third-biggest economy rose 15 percent in the April-December period, compared with the 28 percent pace a year earlier, as a record run of borrowing-cost increases by the central bank curbed demand, according to the Society of Indian Automobile Manufacturers. Yamaha Motor Co., Suzuki Motor Corp. and Honda Motor Co. have all announced plans to add motorcycle capacity in the country.

“While demand is still looking good, the competitive intensity in the two-wheeler segment is rising with the entry of new players,” Gopal Agrawal, chief investment officer at the Indian unit of South Korea’s Mirae Asset Financial Group, said in Mumbai. “That would lead to a division of market share and pressure profits.”

HMCL, a maker of almost half the motorcycles sold in the country, may say tomorrow net income in the December quarter jumped 45 percent to 6.24 billion rupees ($123 million) from a year earlier, according to the median estimate of 29 analysts in a Bloomberg survey.

Stock Rating

Shares of HMCL still have lowest consensus rating among 30 companies in the Sensex, data compiled by Bloomberg show. The stock is rated “sell” by 26 of the 66 analysts who track it, “hold” by 16 and “buy” by 23 others, giving the New Delhi- based company a score of 2.89 out of a possible 5.Bajaj Auto Ltd., India’s second-biggest motorcycle maker, has a consensus rating of 3.85 and TVS Motor Company Ltd. has a rating of 3.93, the data show.

“Falling share price combined with rising open interest and the discount between the underlying stock and its futures shows an accumulation of bearish bets,” said Indrajit Sen, a derivatives analyst at Fortune Financial Services India Ltd. in Mumbai. He has advised clients to take short positions because he expects the stock to decline 10 percent.

HMCL shares rose 1.8 percent to 1,860 rupees at the 3:30 p.m. close in Mumbai, its third day of gain. The stock fell 4.2 percent last year, its first annual loss in four years.

“The shares are rallying on expectation the company may announce a dividend even though results may not deliver any surprise,” Axis Securities Ltd., a subsidiary of India’s third- biggest non-state lender, said by e-mail today.

HMCL’s has a five-year dividend growth rate of 39 percent, the second highest after Bharat Heavy Electricals Ltd. among the 30 companies in the benchmark BSE India Sensitive Index, data compiled by Bloomberg show.