India Stock Futures Advance as Diesel Rise to Lure Funds

Indian stocks climbed to a two-year high after the Indian government allowed oil companies to raise diesel prices, and as overseas funds extended record purchases of domestic shares.

The BSE India Sensitive Index, or Sensex, rose 0.4 percent to 20,039.04, the highest close since Jan 6, 2011. Volumes on the gauge were 66 percent more than the 30-day average. Oil & Natural Gas Corp., India’s biggest state-run explorer, had the sharpest gain in 32 months. Indian Oil Corp., the largest state refiner, jumped the most in more than two years after it raised diesel prices nationwide.

India’s move to raise fuel prices steps up efforts to curb fuel subsidies and narrow the widest budget deficit among the largest emerging nations. The decision extends policy measures since September that seeks to revive economic growth, avert a credit-rating downgrade and spur investment. Overseas investors have bought a net $2.18 billion of domestic shares this year, a record for the period.

“If the government continues to do what is has been doing to control the fiscal deficit without raising taxes, then markets will move higher,” Gul Teckchandani, an independent equity strategist, told Bloomberg TV India today. “Global banks have already raised their target on Indian equities in anticipation of sustained reforms.”

ONGC rallied 7.4 percent to 337.7 rupees, the sharpest advance since May 2010. Indian Oil soared 10.6 percent to 349.3 rupees, the most since Dec. 1, 2010. Hindustan Petroleum Corp. jumped 5.4 percent to 362.4 rupees and Bharat Petroleum Corp. increased 9.8 percent to 434.95 rupees, a record price.

Subsidized Fuel

State refiners, which are not part of the Sensex, lost a combined 738.2 billion rupees ($13.6 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. India plans to cut its subsidy bill for food, fuel and fertilizer to 2 percent of GDP this financial year.

Standard and Poor’s and Fitch Ratings pared their outlooks on India’s rating, currently at the lowest investment-grade level, to negative in 2012 and said the large fiscal deficits and debt are constraining ratings.

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 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 foreigners when announced in March.

Fund Inflows

The measures helped the Sensex to its biggest annual rally since 2009 last year and prompted foreign funds to invest $24.5 billion in shares, the most among the 10 Asian markets tracked by Bloomberg, which excludes China. Overseas funds were buyers of domestic stocks for a 14th day on Jan. 16, purchasing a net $201.6 million of shares, data from the regulator 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.

Maruti Suzuki (India) Ltd. surged 3.6 percent to 1,547.45 rupees while State Bank of India added 0.9 percent to 2,492.05 rupees. HDFC Bank Ltd. lost 0.6 percent to 662.85 rupees after third-quarter earnings of 18.6 billion rupees matched analyst estimates in a Bloomberg survey.

Earnings Scorecard

Wipro Ltd., the technology-services company controlled by billionaire Azim Premji, dropped 7.7 percent to 397.35 rupees after reporting a drop in staff-utilization rates. The stock had gained 9 percent through yesterday since Jan. 10.

ITC Ltd. shares rose 0.8 percent to 287.45 rupees after the cigarette maker’s December quarter profit stood at 20.5 billion rupees, exceeding the 19.9 billion rupees estimate in a Bloomberg News survey. Hero MotoCorp Ltd., India’s biggest motorcycle maker, fell 3 percent to 1,764.1 rupees after the company posted yesterday profit of 4.88 billion rupees for the December quarter, lower than the median estimate of 5.93 billion rupees in a Bloomberg survey of analysts.

One out of seven Sensex firms that have reported earnings for the December quarter has trailed forecasts. That compares with 40 percent of index companies in the three months ended September, the same as for the June quarter, data compiled by Bloomberg show.

The S&P CNX Nifty Index added 0.4 percent to 6,064.40. The India VIX index, which measures the cost of protection against losses in the Nifty, fell 0.9 percent to 13.89. The BSE Mid-Cap Index dropped 0.2 percent to 7,165.46.

The Sensex has gained 3.2 percent this year and trades at 15.9 times estimated earnings, the highest since February. The MSCI Emerging Markets Index is valued at 11 times, according to data compiled by Bloomberg.

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