Sept. 14 (Bloomberg) - 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 US Federal Reserve announced a third round of stimulus measures.
The BSE India Sensitive Index, or Sensex, rose 2.3 per cent to 18,441.16, its highest level since July 26, 2011, according to preliminary closing prices. Lenders and metal producers led the rally, with 10 of the 30 stocks on the Sensex surging more than 4 per ent each. Reliance Industries Ltd, owner of the world’s largest refining complex, gained the most in six weeks. State Bank of India soared 5.6 per cent.
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.”
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 Sensex has climbed 19 percent this year, helped by the highest foreign fund inflows among the 10 Asian markets outside China tracked by Bloomberg. Offshore funds purchased a net $105 million of local shares on September 12, taking investments this year to $12.8 billion, data from the regulator show.
