STOCKS NEWS EUROPE-Vedanta slides after HSBC cuts rating to underweight

Shares in London-listed Vedanta Resources Plc (Other OTC: VDNRF - news) fell as much as 7 percent after HSBC cut its rating on the firm's stock to "underweight" from "neutral" citing sluggish cash flow growth and a delay in buying out the Indian government's stake in its unit.

"Although Vedanta's structure was significantly simplified with the merger of its Indian subsidiaries Sesa Goa and Sterlite Industries in 2013, we think cash flow to VED remains more constrained than the market anticipates," HSBC analyst Ash Lazenby writes in a note.

The brokerage also cuts its target price on the mining and oil gas company's stock to 768 pence from 1,040 pence.

HSBC also cites the Indian government's decision to delay its divestment of its 29.5 percent holding in Vedanta-owned Hindustan Zinc (BSE: HINDZINC.BO - news) to 2015.

The brokerage says the divestment could have added 84 pence to its new 12-month target price on Vedanta's stock.

Vedanta's shares were down 6 percent at 855 pence at 1019 GMT making the stock the biggest percentage loser among FTSE 250 companies.

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Reuters messaging rm://karen.rebelo.thomsonreuters.com@reuters.net