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RIL fuels stock rally

Mumbai, Dec 20: Shares of Reliance Industries Ltd (RIL) surged to a seven-month high today after the Centre permitted the Mukesh Ambani-flagship to raise gas prices from April.

The rally in the RIL counter was a major factor in pushing the 30-share S&P BSE Sensex higher to record its biggest gain in a month. The benchmark index opened higher at 20792.37 and, after trading steady, touched an intra-day peak of 21117.99 before closing at 21079.72, registering a gain of 371.10 points, or 1.79 per cent.

This was the biggest gain for the index since the 388-point rise on November 25. Over the past week, the Sensex has advanced 364 points.

It was clearly RIL that was in the limelight on the bourses after the cabinet committee on economic affairs (CCEA) yesterday decided to allow the oil and gas explorer to sell gas at new prices from April. In another positive for the company, the Centre also ruled that the formula would place no cap or floor on gas prices while re-calibrating prices.

“We believe the Cabinet decision is a key positive as this would likely end the political debate around the D6 gas price increase. It will allow the market to focus on the company’s strong medium-term earnings growth prospects,” foreign brokerage Goldman Sachs said in a note. It added that investors might be worried that RIL had been asked to stump up bank guarantees to make up for the shortfall in production. These guarantees can be encashed if subsequent investigations show that the lapse was due to RIL’s laxity rather than the “geological complexities” it has blamed it on.

Shares of RIL gained 4.58 per cent, or Rs 39.10, to close at Rs 893.65 on the BSE. The ONGC scrip also rallied as it rose nearly 4 per cent to Rs 284.35. The oil and gas and realty stocks led the list of gainers among the 12 BSE sectoral indices.

The RIL share has been underperforming the markets for many months now because of investor concern over declining output from its KG-D6 field. A recent study released by brokerage Motilal Oswal showed that the company was the largest destroyer of investor wealth between 2008 and 2013.

The rupee recovered after three days of decline to close 10 paise higher at 62.04 against the dollar amidst gains in local stocks and capital inflows. Dollar sales by exporters and some weakness in the US currency overseas also supported the rupee.

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