The document provides a weekly market review covering international markets, Asia-Pacific, Europe, Americas, India equity market, and India debt market. Key points include: global markets rallied on policy proposals to address the Eurozone crisis, weak economic data increased bets on further stimulus; regional markets in Asia underperformed but Chinese markets gained on new infrastructure projects; ECB bond purchase plans eased yields in Europe; US markets rallied on expectations of further Fed intervention; positive recommendations on India's proposed GAAR regime boosted the domestic equity market; Indian bond yields eased on improved liquidity but auction cutoffs weighed on sentiment.

1. Market Review
WEEK ENDED SEPTEMBER 7, 2012
International
Global financial markets got a boost from policy proposals to stem the Eurozone sovereign debt crisis and weak
economic data led to increased bets for further stimulus.The subsequent rally in Europe and US markets helped
the MSCI AC World index advance 2.53%. Yields on sovereign bonds of Spain, Italy and many peripheral
countries eased as ECB unveiled plans to buy bonds of countries facing increased financial stress.While economic
data suggested sustained weakness in the economy, increased investor risk appetite led benchmark treasury bond
prices to fall. Precious and industrial metals extended gains and the Reuters Jefferies CRB index closed up 0.67%.
In currency markets, the euro benefited from weaker US economic data and increased risk appetite.
• Asia-Pacific: Regional markets underperformed their peers in Europe and US, but Chinese markets
recorded strong gains. Policymakers approved a range of infrastructure projects (overall cost projected at
around $158 bln), leading to expectations of further stimulus. Central banks in Thailand, Malaysia and
Australia left benchmark policy rates unchanged. Australia’s GDP growth slowed to 3.7%yoy in Q2 from
4.4% in the Q1 due to softer investment spending and deceleration in consumer demand. The economy
shed 8,800 part-time jobs in August and the unemployment rate inched up slightly. Indonesia trade data
was better than expectations – slowdown in imports helped the trade deficit narrowed from a record gap
in June. Bank of Korea has revised its 2Q GDP growth downwards to 2.3% as weaker domestic demand
weighed on most factors.
• Europe: Regional markets rallied as ECB announced fresh bond purchase plans to provide a backstop
for members with funding problems. It will purchase sovereign bonds with residual maturity of one to
three years from secondary markets through Outright Monetary Transactions. However, the countries
should approach the EFSF/ESM for aid, thereby meet various conditions. Bank of England maintained
status quo on monetary policy while the Riksbank cut rates by 25 bps to 1.25%. Portugal announced
fresh austerity measures to ensure it stayed on track to achieve fiscal targets. German July industrial
output was up 1.3% on the back of capital goods demand and UK manufacturing and service PMIs
moved up. France has agreed to bail out Crédit Immobilier de France and Spain announced that it
would be bailing out Bankia for the second time. On the corporate front, Glencore revised its offer to
3.05 shares (previously 2.8 shares) for each Xstrata share to appease Qatar Holding (who has been
opposing the merger deal).
• Americas: US equity indices rallied strongly towards the end of the week despite weak economic data.
The lower-than-expected job additions in August led to speculation the US Federal Reserve will
intervene to support the economy. Non-farm payrolls expanded by 96,000 in August and prior month
figures were revised downwards. Trends in the US ISM survey indices were mixed – while the
manufacturing index stayed below the breakeven 50 level for the third straight month, the services index

2. rose to 53.7 from 52.6. Elsewhere in the region, the Bank of Canada and Mexico central benchmark
held policy rates steady. The Canadian economy added 34,300 jobs in August, and the jobless rate was
unchanged at 7.3%.
Weekly Weekly
change (%) change (%)
MSCI AC World Index 2.53 Xetra DAX 3.50
FTSE Eurotop 100 1.97 CAC 40 3.11
MSCI AC Asia Pacific 1.14 FTSE 100 1.46
Dow Jones 1.65 Hang Seng 1.64
Nasdaq 2.26 Nikkei 0.36
S&P 500 2.23 KOSPI 1.28
India - Equity
Encouraging global newsflow along with a positive report by Dr. Shome panel on GAAR helped Indian equity
markets gain this week.The rally was broad-based and all sectoral indices, except FMCG, closed in the positive
territory.Technology and auto stocks were amongst the lead gainers. FII flows were marginally positive, $44 mln,
for the first four trading days of the week.
• Macro: HSBC India PMI data was mixed this week – the manufacturing sector PMI was a tad lower at
54.3 from 54.4 last month. In contrast, the services sector PMI inched up to 55 from 54.2. Given that the
services sector accounts for a larger share of India’s GDP, the renewed rise in the index is positive. As per
official data, the eight core infrastructure industries grew by 1.8% in July as crude oil, natural gas and
fertilizer industry output contracted. Cumulative growth in the Apr-July period stood at 3.2% vis-à-vis
6% in the same period last year.
• GAAR: The Union Budget this year had proposed introduction of General Anti-Avoidance Rules
(GAAR) into India’s tax legislation. The initial draft rules for GAAR were widely criticized for adding
to tax and legal uncertainties for foreign investors. With a view to address the investor grievances, the
Prime Minister had appointed an expert panel to review the proposed GAAR regime and collate
feedback from various stakeholders.The panel’s report, which was released early this week, has been quite
positive. In that the panel has suggested the implementation of GAAR be pushed back by three years so
as to provide sufficient transition time to both authorities and tax payers. Recommendations such as
grandfathering clause (i.e. exclusion of retrospective transactions) and adoption of advance ruling
mechanism are positive and will provide investors a sense of certainty. The panel has also suggested the
scope of GAAR be clearly defined – the law should be invoked only if arrangements clearly stand to abuse
rules and/or are artificially arranged to evade tax. Other key recommendations are –
• Abolition of tax on capital gains (short-term and long term) from transfer of listed
securities by resident and foreign investors

3. • GAAR should not apply to FII sub-accounts
• Administration should provide a negative list of GAAR cases
• Exemption of investors compliant with existing double taxation treaties from GAAR
provisions
The last point essentially addresses concerns of investors domiciled in countries such as Mauritius and
Singapore, which are significant sources of capital flows to India. The panel suggests that the double-
taxation treaties may be revisited for inclusion of certain limitation of benefits or anti-abuse provisions to
prevent undue leakages. In our view, the panel recommendations are in the right direction and if adopted,
should boost confidence of global investors in India.
Weekly change (%)
BSE Sensex 1.46
S&P CNX Nifty 1.59
S&P CNX 500 1.59
CNX Midcap 1.94
BSE Smallcap 0.95
India - Debt
Helped by improved liquidity conditions, Indian benchmark bond yields eased this week but closed off lows as
higher than expected bond auction cutoffs and concerns about fiscal deficit weighed on sentiment. One of the
GOI bond auctions partially devolved on primary dealers.
• Yield movements: Bond yields eased across maturities this week.Yields on the 1-year paper closed
5 bps lower than last week levels, while that on the 10 and 30 year gilt papers was down 3 bps
each. As a result of this the yield curve steepened slightly and spreads between 1-year and 30-year
gilts expanded 46 bps from 44 bps earlier.
• Liquidity/ Borrowings: Liquidity deficit reduced sharply this week. Overnight call money rates closed
down at 7.5% levels (7.9% last week) and average repos under the RBI LAF window fell to Rs. 15000 crores
from Rs. 47,800 crores last week. Scheduled bond auctions of four GOI securities worth Rs. 16,000 crores
were oversubscribed more than two times. However, high cutoffs resulted in the 8.97% GOI 2030 auction
devolving on the primary dealers to the tune of Rs. 633 crores. Liquidity conditions are likely to come under
pressure over the next few weeks due to advance tax outflows.
• Forex: Dollar weakness towards the close of week helped the Indian currency reverse losses incurred earlier
on dollar demand from oil importers and close the week in positive territory.As of Aug 31, forex reserves stood
at $290.6 bln, about $282 mln higher than previous week levels.
• Outlook: The latest round of global economic data has added to evidence that economic growth remains
anemic in many parts of the world and we can expect policymakers to deploy additional stimulus in the
foreseeable future, perhaps in more creative ways. Asia and EM economies are also witnessing slower growth

4. but have relatively larger headroom to maneuver fiscal and monetary policy.
While India is also experiencing slower growth, the RBI has indicated that monetary easing will need to be
preceded by structural policy changes and fiscal tightening.The Indian government has budgeted a fall in fiscal
deficit and subsidies for the ongoing fiscal year. International crude oil prices have firmed up in recent times
and pose challenges.The FY13 budget provision for fuel subsidies appears understated, given that Rs. 43,600
crores provision includes dues to the tune of Rs. 25,000 crores towards FY12 subsidy payments.
The monetary policy direction remains uncertain, despite the weak macro-environment and fall in headline
inflation. A lot would depend on future data (especially core inflation) and credible plans by the government
for fiscal consolidation and boosting investment growth.The RBI is expected to conduct OMOs if liquidity
tightens due to advance tax outflows.
07.09.2012 31.08.2012
Exchange rate (Rs./$) 55.355 55.52
Average repos (Rs. Cr) 14,285 47,785
1-yr gilt yield (%) 8.14 8.19
5-yr gilt yield (%) 8.21 8.24
10-yr gilt yield (%) 8.28 8.31
Source: Reuters, CCIL.
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