Reliance Communications, Oil & Natural Gas Lead as India's Sensex Advances

India’s stocks advanced for the first time in three days. Reliance Communications Ltd. led gains amid expectations it will reduce debt after selling a unit.

Reliance Communications, the nation’s second-largest wireless carrier, jumped to the highest in eight months after selling its mobile-phone towers to GTL Infrastructure Ltd. Oil & Natural Gas Corp., the largest state-owned oil explorer, extended its advance from a record for a second day after the government increased fuel prices. Reliance Industries Ltd., the most valuable company, gained 2.6 percent after it made its seventh oil discovery in a block in the Cambay basin in western Indian state of Gujarat.

“It is better to buy companies that have strong fundamentals and fairly strong elbow room in terms of financial resources,” said Avinash Gupta, an analyst at Bonanza Portfolio Ltd., a New Delhi-based brokerage. “The fuel price increase may lead to inflationary pressure in the short term, but it may also bring down the government’s subsidy burden.”

The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 199.73, or 1.1 percent, to 17,774.26, its highest in a week. The S&P CNX Nifty Index on the National Stock Exchange rose 1.2 percent to 5,333.50. The BSE 200 Index increased 1.2 percent to 2,255.68.

Lower Liabilities

Reliance Communications climbed 4.9 percent to 201.65 rupees, its highest close since October. The company will cut its debt by at least $3 billion by selling the mobile-phone transmission towers, people familiar with the deal said. GTL soared 3.9 percent to 47.1 rupees, its highest close since June 2009.

“Traders are buying and selling on stock-specific news,” said Arun Kejriwal, the Mumbai-based director of Kejriwal Research & Investment Services Pvt. “All the concerns like global factors, domestic inflation and an interest-rate hike are still there.”

Oil & Natural surged 3.3 percent to 1,304.85 rupees, its highest level since the shares were listed in August 1995, extending a 6.2 percent climb. India on June 25 scrapped price controls on gasoline and diesel after more than seven years, a move that will reduce the country’s budget deficit and increase refiners’ profits. Indian Oil Corp., the nation’s biggest state- owned refiner, gained 5.2 percent to a record 397.6 rupees, extending an 11 percent advance.

Ratings Raised

Bharat Petroleum Corp. soared 3.5 percent to 642.5 rupees, extending a 13 percent surge, while Hindustan Petroleum Corp. increased 7.7 percent to 433 rupees. Both companies were raised to “buy” from “hold” by Amit Rustagi, an analyst at Antique Stock Broking.

Reliance Industries gained 2.6 percent to 1,090.15 rupees, its highest since April 13. Reliance, Royal Dutch Shell Plc and Essar Energy Plc may revive plans to add retail fuel outlets in India after Asia’s third-biggest energy consumer scrapped subsidizing gasoline and diesel. Essar Energy will “significantly” increase the number of outlets, said Naresh Nayyar, chief executive officer of Essar Energy.

Reliance Industries should gain from the government’s decision to lift subsidies on gasoline and diesel and may revisit its strategy to build 5,000 fuel outlets, Morgan Stanley analysts Vinay Jaising and Rakesh Sethia said in a June 26 note to clients.

Fanning Prices

India’s decision to allow fuel prices to rise may spur the inflation rate, which was 10.16 in May, by almost a percentage point, the finance ministry said. That may increase pressure on the central bank to increase borrowing costs.

Still, removing subsidies will pare the government’s $5.5 billion oil subsidy that accounts for about 2.5 percent of its budget. The move comes as global investors heighten scrutiny of government finances in the aftermath of the European sovereign- debt crisis.

“Though the immediate impact of this policy will be to increase inflation, in six to nine months we will have lower prices than would have happened in the absence of this much- needed reform,” Kaushik Basu, chief economic adviser at the finance ministry, said on June 25.

Overseas funds purchased a net 12.4 billion rupees of Indian equities on June 24, taking their total investments in the stocks this year to 307 billion rupees, according to the nation’s market regulator.

Inflows from overseas reached a record 834.2 billion rupees in 2009, exceeding the high set two years ago in local currency terms, as the biggest advance in 18 years lured foreign funds. They sold a record 529.9 billion rupees of shares in 2008, triggering a record annual decline.

The following were among the most active on the exchange:

Essar Oil Ltd. (ESOIL IN) advanced 2.4 percent to 140.9 rupees. The second-biggest non-state refiner won four coal-bed methane blocks, it said in a statement to the Bombay Stock Exchange. The largest private fuel retailer is also set to benefit “significantly” from India’s decision to partially deregulate fuel prices, Nitin Sharma, an analyst at JP Morgan Cazenove Ltd., wrote in a note to clients.

Mahindra & Mahindra Ltd. (MM IN) climbed 1.6 percent to 622.85 rupees. The biggest maker of tractors plans to invest 2.5 billion rupees in its aerospace business, Vice Chairman Anand Mahindra said at a news conference in Bangalore on June 26.

Tata Motors Ltd. (TTMT IN) rose 2.7 percent to 789.25 rupees, snapping four days of losses. Tata Group is close to buying an automotive company in Mexico, Business Line reported, citing Lorenza Martinez, Mexico’s undersecretary for industry and commerce. Tata Motors’ Vice Chairman Ravi Kant couldn’t immediately be reached at his office telephone for comment on the report.

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

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