Gas price hike plan, reform moves fire up market, boost rupee

Cabinet decisions on gas price and energy sector reforms powered up the market, with the BSE Sensex surging 520 points — the biggest single-day gain in 20 months — to regain the psychological 19,000 mark.

The increase in prices of natural gas from $4.2 per unit to $8.4, the plans to set up a coal regulator and short covering as also global cues gave the Nifty a 160-point boost to 5,842.

Back-to-back gains

Friday’s market rally comes on the back of a 324-point jump on Thursday, as sentiment in global markets turned bullish on hopes that the US Fed Reserve will not withdraw the stimulus package in a hurry. Foreign institutional investors were net buyers of equity worth Rs 1,124 crore thanks to the reform initiatives, while domestic funds sold stocks worth Rs 581 crore. Retail investors on the BSE offloaded stocks worth Rs 81 crore in the net. The rupee too strengthened 81 paise to close at 59.38 against the dollar on heavy capital inflows and a strong equity market.

The currency sentiment was supported by the sharp drop in the current account deficit (CAD) number.

All the indices on the NSE and the BSE closed in the green. The rally was led by energy, auto, banks and commodity scrips. The NSE’s CNX energy index closed at 7999, up 3.76 per cent (290 points).

On the BSE, barring Oil India, the other nine energy stocks closed in the green. The S&P BSE Oil & Gas index closed at 8900, up 3.37 per cent (290 points).

“Fear that the increase in price for the producer cannot be passed on entirely to the end-user saw the Oil India Scrip erode a little,” said Niraj Mansingka of Edelweiss. Experts said that the increase in the price of natural gas and oil would actually be about three times the current price in rupee terms.

Rupee impact

Arun Kejriwal, Founder, KRIS Research, said: “The earlier price was when the rupee dollar exchange rate was 45. With the rupee now quoting at 60, the impact on the rupee price is nearly three times even though the dollar price has only doubled.”

The Centre’s subsidy burden is likely to increase by Rs 8,300 crore at current exchange rates, said an India Ratings report. Further depreciation in the rupee could push up the burden to Rs 14,000 crore, it added.

Vedika Narvekar of Angel Commodities Broking said: “With the intention of boosting production and reducing import dependence, the Union Cabinet has increased the minimum support price of oilseeds and pulses for the 2013-14 season. A normal monsoon and brisk sowing may ensure timely harvest of kharif crops, thereby easing supplies in the coming season.”

Ashish Choudhary, a retail investor, said: “It is interesting to note that FIIs have bought stocks worth Rs 281 crore in the net during the last two days despite the Sensex gaining over 844 points.’’

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