Indian stocks rose and the rupee strengthened after Prime Minister Narendra Modi scrapped diesel price controls to curb subsidies and his party won the most number of seats in two state elections.

Oil & Natural Gas Corp. (ONGC), India’s largest state-owned oil explorer, and Hindustan Petroleum Corp. (HPCL) rallied after the government increased natural-gas tariffs and freed diesel from price controls. State Bank of India, the nation’s biggest lender, advanced to a four-week high. The S&P BSE Sensex (SENSEX) jumped 1.5 percent to 26,505.97 as of 11:38 a.m. in Mumbai. The rupee strengthened 0.3 percent.

The changes, Modi’s biggest steps toward curbing subsidies that have contributed to the nation’s budget deficit, build on his pledge to revitalize the economy. Modi’s Bharatiya Janata Party made gains in two state polls, helping it progress toward greater influence in the upper house of the parliament, where it is in a minority.

“These reforms were awaited for a long time and it is an indication of things to come,” U.R. Bhat, a director at Dalton Capital, a unit of U.K.-based Dalton Strategic Partnership LLP that has $ 2 billion in assets, said in an interview today with Bloomberg TV India. “The timing is perfect and they had the political sanction.”

State Subsidies

Removal of state controls on diesel prices will help free resources for the administration and Oil & Natural Gas, which currently bear the brunt of the subsidies.

Government-controlled refiners have been selling diesel, kerosene and liquefied petroleum gas below the cost of production to help rein in inflation. They were partially compensated with cash from the federal budget, while explorers gave them discounts on crude.

Oil & Natural Gas climbed 6.8 percent, the most since June 6, amid speculation higher gas prices may spur investments in exploration. Hindustan Petroleum Corp. gained 6 percent and Indian Oil Corp. (IOCL), the nation’s biggest refiner, gained 4.4 percent. Oil India Ltd. added 2.9 percent.

Election Effect

State Bank of India (SBIN) added 2.2 percent, and ICICI Bank Ltd. (ICICIBC), the country’s second-biggest lender, climbed 2 percent. HDFC Bank Ltd. (HDFCB) advanced 1.5 percent to a record.

The BJP and allies won 122 of the 288 seats in Maharashtra while the BJP won 47 of 90 seats in Haryana. State elections are important for control of the Rajya Sabha, or the upper house of parliament, where representation is based on seats in local assemblies. While the BJP controls the lower house, or Lok Sabha, after winning India’s strongest mandate in 30 years, it holds about 18 percent of the Rajya Sabha.

Foreigners sold $ 179 million of Indian equities on Oct. 16, paring the inflows in 2014 to $ 13.2 billion, still the highest among eight Asian markets tracked by Bloomberg. The Sensex has risen 25 percent this year, the best performer among the world’s 10 biggest markets.

The Sensex is valued at 15.2 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s multiple of 10.7.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net Phani Varahabhotla