India’s benchmark stock index rose for the third day, extending the biggest rally in four months, as a drop in oil outweighed concern an increase in local fuel prices will stoke inflation.
Oil & Natural Gas Corp., the nation’s largest state-owned explorer, surged the most in a month, and Indian Oil Corp. rose 3.2 percent after the government increased diesel costs for the first time in a year. Oil fell in New York as the International Energy Agency said it’s prepared to release more stockpiles to stabilize prices. Larsen & Toubro Ltd., the largest engineering company, added 2.7 percent.
The Bombay Stock Exchange Sensitive Index, or Sensex, rose 171.73, or 0.9 percent, to 18,412.41 at the 3:30 p.m. close in Mumbai. The measure surged the most since March 1 on June 24 as crude prices plunged. The S&P CNX Nifty Index on the National Stock Exchange climbed 1 percent to 5,526.60 and its June futures settled at 5,536.60. The BSE 200 Index added 1.1 percent to 2,274.30.
“The fuel price hike will raise inflation by 1 percentage point but that will be more than offset by a decline in global commodity prices,” said Manish Sonthalia, who manages $300 million in equities at Motilal Oswal Asset Management Co. in Mumbai. “Lower commodity prices are the biggest positive.”
Policy makers allowed state refiners June 24 to increase diesel prices by 3 rupees (7 cents) a liter, kerosene by 2 rupees a liter and cooking gas by 50 rupees for every 14.2 kilogram bottle. Refiners lost 450 billion rupees ($10 billion) in the first quarter from selling fuel below cost.
Asia’s third-biggest economy caps diesel and cooking-fuel prices to shield 66 percent of the population that lives on less than $2 a day from price pressures. India’s inflation is running at 9.06 percent, more than twice the rate in the U.S. and almost four times Germany’s.
Oil & Natural Gas jumped 4.2 percent to 284.2 rupees, the most since May 26. Indian Oil, the biggest refiner, gained 3.2 percent to 347.7 rupees. Bharat Petroleum Corp. climbed 4.6 percent to 663.95 rupees. Hindustan Petroleum Corp. surged 5.8 percent to 415.4 rupees.
“The government has set the ball rolling with the fuel price hike and is now in a sweet spot to fully decontrol diesel prices,” Motilal’s Sonthalia said. “Oil-marketing companies will not incur any losses if Brent comes to $90 a barrel.”
August-delivery Brent oil fell as much as 2.7 percent to $102.28 a barrel in London. Prices tumbled 2 percent to $105.12 on June 24, the lowest close since Feb. 18.
Mahindra & Mahindra Ltd., the largest maker of sport-utility vehicles and tractors, increased 2.9 percent to 693.3 rupees amid speculation higher farm output, spurred by above-average rain, will boost demand for its tractors.
India’s monsoon, the main source of irrigation for the nation’s 235 million farmers, was 7 percent above a 50-year average since the season began June 1, the weather office.
The Sensex is the second-worst performer among Asian benchmark indexes tracked by Bloomberg this year as India’s central bank has raised rates 10 times since the start of last year to cool rising consumer and food prices. Sensex stocks are valued at 14.9 times estimated earnings, compared with 10.8 for the MSCI Emerging Markets Index.
Still, the economic headwinds are starting to “subside,” Nomura Holdings Inc. analysts led by Prabhat Awasthi wrote in a report today. The firm is changing its “bearish” stance amid the “significant” underperformance of Indian stocks this year and as inflation momentum shows signs of slowing.
“While growth has been a casualty of increasing rates and policy procrastination, we are encouraged by slower growth as it eases pressures on India’s supply-side constrained economy,” Awasthi wrote. “A correction in the market should be used as a buying opportunity.”
Sensex companies are trading at a 17 percent discount to their average valuation over five years, indicating the market has priced in “significant risk,” Awasthi estimated. His top stock picks are Larsen & Toubro, Mahindra & Mahindra, DLF Ltd., Reliance Industries Ltd. and Power Grid Corp. of India Ltd.
ICICI Bank Ltd., the country’s second-biggest lender, rose 1.4 percent to 1,079.4 rupees. State Bank of India, the biggest, advanced 1.8 percent to 2,326 rupees.
Larsen climbed 2.7 percent to 1,786.5 rupees and its June futures settled at 1,788 rupees. Tata Steel Ltd. climbed 1.8 percent to 589.35 rupees.
Overseas investors bought a net 4.84 billion rupees ($108 million) of Indian stocks on June 23, the first purchase in 10 days, paring their withdrawals from local equities this year to 19.3 billion rupees, data compiled by the regulator show.