Bloomberg/Mumbai

India’s benchmark equities index climbed to a three-week high amid optimism the government’s pledge to narrow the fiscal gap to the lowest in seven years and duty-cut proposals will revive economic growth.

Axis Bank jumped the most in three months, helping a gauge of lenders to its steepest gain in five weeks. Mortgage lender Housing Development Finance Corp rallied the most in two months. Engineering company Larsen & Toubro advanced to a one-month high.

The S&P BSE Sensex increased 0.8% to 20,634.21, the highest close since January 29. The fiscal gap will narrow to 4.1% of gross domestic product by March 31, 2015, Finance Minister Palaniappan Chidambaram said yesterday, while unveiling an interim budget before polls due by May. He also pared taxes for cars and consumer goods to stoke demand in an economy set to recover from a decade-low pace.

“GDP growth has troughed, the rupee has stabilised and current-account deficit has been pared,” Abhay Laijawala, head of research at Deutsche Equities India, said in an interview to Bloomberg TV India yesterday. “The economy is looking better than it was in the past three to four years. This year may be the beginning of a bull market in India.” The Sensex may climb to 24,000 by end of 2014, he said.

Axis Bank surged 4.5%, the most since November 14, and the best performer on the Sensex. State Bank of India rebounded from its lowest price since May 2009. ICICI Bank jumped 2.8% to a one-month high. Housing Development rallied 3.2%, the steepest climb since December 20. Tata Steel added 1.5%, the biggest gain since February 11. Larsen increased 1.9% to its highest since January 23.

Tata Motors, owner of Jaguar Land Rover, gained 1.2% to a two-month high. Carmaker Maruti Suzuki India gained 2.6%, a third day of increase.

Chidambaram yesterday proposed to cut the excise duty on small cars to 8% from 12%, and the tax on SUVs to 24% from 30%. Local sales of passenger vehicles fell 5.7% in the nine months ended December, set for the biggest annual drop in a decade. He also cut the duty for DVD players, washing machines and microwave ovens.

Meanwhile the rupee snapped a two-day gain, retreating from a four-week high, on speculation importers bought dollars to meet payments.

The local currency’s losses will be limited by optimism the nation’s current-account deficit is narrowing, according to state-owned Andhra Bank. The shortfall will decline to a four- year low of $45bn in the year ending March 31, Finance Minister Palaniappan Chidambaram said yesterday. The nation’s refiners will repay dollars raised via currency swaps from the central bank by the end of May, according to an official with direct knowledge of the matter.

The rupee fell 0.6% to 62.22 per dollar in Mumbai, the biggest drop since January 27, prices from local banks compiled by Bloomberg showed. It touched 61.8250 yesterday, the strongest level since January 22. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped one basis point, or 0.01 percentage point, to 7.77%. The market is shut today for a local holiday.