Indian Oil Corp. (IOCL), the nation’s biggest refiner, surged the most in three and a half years in Mumbai trading and led an advance in refinery stocks after diesel prices were raised for the first time in four months.
Indian Oil rose as much as 19 percent, the most since May 2009, and traded 11 percent higher at 350.65 rupees as of 10:21 a.m. Bharat Petroleum Corp. increased as much as 7.8 percent and Hindustan Petroleum Corp. jumped 10 percent. The benchmark Sensitive Index (SENSEX) climbed 0.6 percent.
Prime Minister Manmohan Singh’s government yesterday allowed state-run refiners to fix diesel prices on their own for the first time in more than a decade, seeking to narrow an expanding subsidy bill and budget deficit. Refiners including Indian Oil are planning monthly increases in prices of the fuel, two people with direct knowledge of the matter said yesterday. State refiners lost 9.6 rupees ($0.18) a liter on sales of diesel before today’s increase.
“It’s one of the best steps the government has taken in recent months and it will have far-reaching impact on the economy,” said Deven Choksey, managing director at Mumbai-based KR Choksey Shares & Securities Pvt. “Increasing fuel prices will clear the path to reducing subsidies, which is one of the main reasons behind our high fiscal and current account deficits.”
Indian Oil raised diesel prices by 0.50 rupees a liter in New Delhi effective today, according to the company’s website. The refiner also said it increased the price of domestic non- subsidized cooking gas by 46.50 rupees a bottle.
The government increased the number of subsidized cooking gas bottles per household to nine from six annually, according to the statement. Gasoline price was reduced by 0.25 rupees a liter. Diesel to bulk users, including the railways, will be sold at market rates, increasing prices by 9.25 rupees.
Higher diesel prices will help reduce annual revenue losses on fuel sales at the three state-run refiners by 150 billion rupees, Indian Oil said yesterday. The increased number of subsidized LPG bottles will raise the bill by 100 billion rupees.
The refiners lost 124.85 trillion rupees on below cost fuel sales in the nine months ended Dec. 31, according to oil ministry data. This includes 738.2 billion rupees on diesel.
The refiners sell diesel, cooking gas and kerosene at fixed prices. They are partly compensated by cash payments from the government and discounts on crude oil by state explorers including Oil and Natural Gas Corp. and Oil India Ltd. (OINL) Gasoline is deregulated.
ONGC surged as much as 13 percent to 355 rupees. Oil India gained as much as 20 percent.
India plans to trim its subsidy bill for food, fuel and fertilizer to 1.9 trillion rupees, or 2 percent of gross domestic product, in the year ending March 31. The state refiners lost 738.2 billion rupees from selling diesel below cost in the nine months ended Dec. 31.
Finance Minister Palaniappan Chidambaram aims to cut the budget deficit to 5.3 percent of GDP this financial year from 5.8 percent in the previous period. India forecasts Asia’s third-largest economy will expand at 5.7 percent this financial year, the weakest pace in a decade.
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