Indian stocks climbed to their highest level in 14 months after the government raised diesel prices for the first time in more than a year and the U.S. Federal Reserve announced a third round of stimulus measures.
The BSE India Sensitive Index, or Sensex, rose 2.5 percent to 18,464.27, its highest close since July 26, 2011. Lenders and metal producers led the rally, with 10 of the 30 stocks on the gauge surging more than 4 percent each. Reliance Industries Ltd., owner of the world’s largest refining complex, advanced to a seven-month high. State Bank of India soared 5.6 percent.
The diesel-price increase, the first since June 2011, will bolster government finances and may increase the chance the Reserve Bank of India will ease monetary policy. Prime Minister Manmohan Singh is trying to reduce a budget deficit amid high inflation, slowing economic growth and the threat of a rating downgrade from Standard & Poor’s and Fitch Ratings.
The change in fuel costs “is a bold move and is good for the equity market as it will help the government cut the fiscal deficit,” Anand Shah, chief investment officer at BNP Paribas Asset Management India Pvt., said by phone from Mumbai. A lower fiscal deficit will “eventually bring down interest rates.”
Indian stocks also gained from a rally in global equities after the U.S. Fed said yesterday it will undertake open-ended purchases of $40 billion of mortgage debt a month as it seeks to boost growth and lower unemployment. The Fed’s move followed ECB President Mario Draghi’s earlier statement that the bank has agreed to an unlimited bond-purchase program.
The MSCI Asia Pacific Index surged 2.4 percent. Futures on the Standard & Poor’s 500 Index gained 0.5 percent after the index yesterday rallied to its highest level since 2007, while the S&P GSCI Index of 24 commodities reached a five-month high.
“It’s all green lights out there, the mark of a concerted effort globally to really stimulate growth,” Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees $500 billion, told Bloomberg TV India today. “Growth is flagging globally and central banks are the only institutions that can do something about it given that governments face different problems.”
The Sensex has climbed 19 percent this year, helped by the highest foreign fund inflows among the 10 Asian markets outside China tracked by Bloomberg. The 30-stock gauge is the world’s second-best performer among indexes with at least a $1 trillion market value. Offshore funds bought a net $74 million of shares yesterday, taking investments this year to $12.8 billion, data from the regulator show.
‘Bit the Bullet’
The diesel-price change will help cut revenue losses of $3.7 billion at state-owned refiners and lower the government’s subsidy costs as it seeks to curb spending. The refiners sell fuels at below market prices to curb inflation, and are partly compensated by cash payments from the government and discounts on crude by state-run explorers.
“The government has bit the bullet,” Indranil Pan, chief economist at Kotak Mahindra Bank Ltd., said by e-mail. “This upward adjustment in prices should not be viewed as a drag on the economy but as collateral damage for required structural adjustments.”
India’s inflation was faster than economists estimated in August, trade ministry data showed today. RBI Governor Duvvuri Subbarao will leave borrowing costs at 8 percent for a third meeting on Sept. 17, 31 of 32 economists said in a Bloomberg survey, as higher fuel costs stoke prices.
Singh is targeting a budget deficit of 5.1 percent of GDP in the year ending March 31 from 5.8 percent a year ago. Asia’s third-largest economy expanded 5.5 percent in the June quarter after growing 5.3 percent in the previous quarter, the least in three years, according to government data.
Indian Oil Corp., the largest refiner, dropped 2.3 percent to 248.8 rupees, and Bharat Petroleum Corp., the second-biggest state-run refiner, lost 1.3 percent to 350.2 rupees. Hindustan Petroleum Corp. declined 2.5 percent to 300.25 rupees.
“There’s doubt among investors whether the price increase can be sustained,” Chokkalingam G, chief investment officer at Centrum Broking Pvt. in Mumbai, told Bloomberg TV India today. “We’ve seen it in the past the political strategy of hiking prices aggressively only to roll them back partially.”
Pantaloon Retail India Ltd., the top supermarket operator, led its peers higher after a report said the government may decide today to allow foreign investment in multi-brand retail.
Pantaloon surged 7.1 percent, the biggest gain since June 6, to 157.90 rupees. Shoppers Stop Ltd. rose 1.2 percent to 356 rupees, the highest since Aug. 27, and Trent Ltd. increased 3 percent, after CNBC-TV18 reported the government may ease rules on overseas ownership of stores selling more than one brand, citing sources it didn’t identify.
India’s government on Nov. 24 agreed to allow overseas companies such as Wal-Mart Stores Inc. to own as much as 51 percent of multibrand retail stores, and was forced to reverse that decision after protests by opposition political parties and some of Singh’s own allies. The cabinet is scheduled to meet today and may consider among other decisions allowing foreign airlines to buy stakes in local carriers, according to two government officials with direct knowledge of the matter.
Jet Airways (India) Ltd., the biggest carrier, gained 2.1 percent to 368.65 rupees, its seventh day of advance. Budget carrier SpiceJet Limited soared 4.4 percent to 34.5 rupees. Kingfisher Airlines Ltd. surged 7.5 percent to 10.8 rupees.
Reliance Industries soared 5.3 percent to 841.75 rupees, its highest level since Feb. 21. ICICI Bank Ltd. jumped 5.1 percent to 1,008 rupees. State Bank of India advanced 5.6 percent to 1,971.5 rupees. Larsen & Toubro Ltd., the largest engineering company, added 5.1 percent to 1,490 rupees.
The Sensex is valued at 14.6 times estimated earnings, compared with the MSCI Emerging Markets Index’s 11.4 times.
The S&P CNX Nifty Index jumped 2.6 percent to 5,577.65 and its September futures settled at 5,584.90. The India VIX, which gauges the cost of protection against losses in the Nifty, fell 1.9 percent to 15.38. The BSE-200 Index increased 2.2 percent to 2,231.92. The National Stock Exchange of India Ltd. and BSE Ltd. traded 743 million shares yesterday, 16 percent less than the 12-month daily average of 880 million.