Indian stocks advanced after the government allowed oil companies to increase diesel prices as it seeks to narrow the fiscal deficit. Refiners and software exporters led the gains.
The BSE India Sensitive Index, or Sensex, increased 0.7 percent to 19,964.03 at the close, with volumes exceeding the 30-day average by 35 percent. Reliance Industries Ltd., India’s most-valuable company, rose to a 15-month high. Oil & Natural Gas Corp., the biggest state explorer, surged to a 21-month high. Wipro Ltd., the third-biggest software maker, climbed to the highest level in almost nine months.
The government wants to pare spending on fuel subsidies as part of a plan to cut the budget deficit to a two-year low of 5.3 percent of gross domestic product and avoid a credit-rating downgrade. The decision is the latest in the series of measures taken by Prime Minister Manmohan Singh to revive the economy expanding at the weakest pace in a decade.
“This is by far the single biggest endorsement that India is taking difficult decisions to restore growth,” said Abhay Laijawala, managing director and head of research at Deutsche Equities India Pvt. in Mumbai. “This is a big positive from the point of view of the fiscal deficit” for the year starting April 1, he said.
Standard and Poor’s and Fitch lowered their outlooks on India’s rating, currently at the lowest investment-grade level, to negative in 2012 and said the nation’s large fiscal deficits and debt are constraining ratings.
Reliance, the owner of the world’s largest oil-refining complex, jumped 3.3 percent to 890 rupees, the highest close since Oct. 28, 2011. Oil & Natural Gas increased 3.5 percent to 314.45 rupees, the highest close since April 28, 2011. The two stocks have a combined 13 percent weighting on the Sensex. The BSE India Oil & Gas Index jumped to a 19-month high.
The three state refiners -- Indian Oil Corp., Hindustan Petroleum Corp. and Bharat Petroleum Corp. -- lost a combined 738 billion rupees ($14 billion) selling diesel below cost in the nine months ended Dec. 31, oil ministry data show. ONGC is forced by the government to sell crude oil to the refiners at a discount to partly compensate them for fuel sales below cost.
Indian Oil climbed 6.4 percent, the most since Dec. 1, 2010. Hindustan Petroleum gained 5.4 percent to a six-month high and Bharat Petroleum rose 3.7 percent to the highest close in 28 months. The companies are not Sensex members.
Since mid-September, Singh has reduced taxes on companies’ overseas debt, cut fuel subsidies to improve public finances and allowed more foreign holdings in local-currency bonds and industries including retailing and aviation. In December, the government approved changes to a century-old land law to help accelerate infrastructure projects, and this week, delayed a clampdown on tax avoidance until 2016 after the plan spooked foreign investors when announced in March.
The steps helped the Sensex to its biggest annual rally since 2009 last year and prompted offshore funds to invest a net $24.5 billion in local shares, the most among the 10 Asian markets tracked by Bloomberg. Offshore funds have bought a net $1.97 billion of shares this year, a record for the period, the data compiled by Bloomberg show.
The Sensex surpassed the 20,000 level for the first time in two years on Jan. 15. The gauge may climb to 22,500 this year if policy steps continue, Deutsche Equities predicted in a Jan. 15 report. Morgan Stanley said the same day it expects the measure to reach 23,069 by December.
“Inflows are likely to continue on expectation that the government will extend its reform initiatives,” Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai, said in a phone interview today.
Wipro climbed 2.6 percent to 430.70 rupees, the highest close since April 24. The software exporter may report tomorrow a profit of 16.3 billion rupees for the quarter ended December, according to the median estimate of 37 analysts in a Bloomberg survey. Tata Consultancy Services Ltd., the biggest software exporter, rose 1.1 percent to 1,362 rupees, the highest since Sept. 14. Infosys Ltd. gained 1.1 percent to 2,797.95 rupees.
Out of the four Sensex companies that have posted earnings for the December quarter just one has lagged analysts’ estimates. That compares with 40 percent of the index companies missing forecasts for the July-September period, the same as for the June quarter, data compiled by Bloomberg show.
Tata Motors Ltd., owner of Jaguar and Land Rover luxury brands, advanced 2.8 percent to 328.95 rupees, the most since Jan. 9. Hero MotoCorp Ltd., India’s biggest motorcycle maker, dropped 0.9 percent to 1,818.7 rupees, a second day of loss. The company reported profit of 4.88 billion rupees for the December quarter, trailing the 5.93-billion rupee estimate in a Bloomberg survey. Earnings were announced after trading ended.
Bharti Airtel Ltd., the largest mobile services company, gained 3.1 percent to 353.5 rupees.
The S&P CNX Nifty Index added 0.6 percent to 6,039.2. The India VIX index, which measures the cost of protection against losses in the Nifty, rose 0.1 percent to 14. The BSE Mid-Cap Index rose 0.3 percent to 7,182.25.
The Sensex trades at 15.8 times estimated earnings, the highest reading since March. The MSCI Emerging Markets Index is valued at 10.9 times, according to data compiled by Bloomberg.