Market may consolidate

The market may consolidate in a truncated week ahead amid lack of major triggers in the near term. The stock markets remains closed on Monday, 20 August 2012, on account of Ramzan Id. The progress of monsoon rains will be closely watched. The monsoon rains--which make up around 70% of India's annual rainfall--are crucial to the nation's agriculture sector and broader economy. More than 60% of the country's farmland is rain-fed. The India Meteorological Department (IMD) expects normal rains in August -- a critical month for summer crops. It expects rainfall to be 5-6% below average in September due to the possibility of El Nino. The weather office expects rainfall during August-September to be 91% of the long-term average. The monsoon has been less than average during the current year. Rainfall across the country has been 15% below the long-term average so far this monsoon season, which started June 1. An India-Mauritius joint panel will discuss a series of proposals to review the double taxation avoidance treaty between the two nations on 22-24 August in Mauritius. India has been looking to negotiate the double taxation avoidance agreement with Mauritius for the past few years to check so-called round tripping and other potential abuses. Round tripping entails moving money out of one country to another, and getting it back under the garb of foreign capital. Capital gains tax is close to zero in Mauritius and almost 40% of investments into India come through the island nation. Under the bilateral agreement, capital gains from sale of securities can be taxed only in Mauritius. The India-Mauritius joint working group will also discuss the inclusion of a so-called limitation of benefit clause, similar to the Singapore tax treaty with India, to ensure only genuine Mauritius-based companies are benefited. India's tax agreement with Singapore says that only those companies that spend a minimum of $200,000 (about Rs 1 crore) in Singapore can avail the benefits of the treaty. Sanctity of tax residency certificates issued by a country to companies operating in its jurisdiction to enable the firms to claim tax benefits under various treaties is another issue between India and Mauritius. While India in this year's national budget said the certificates are a necessary but not sufficient condition, Mauritius wants those issued by it honoured. Draft guidelines issued by Indian government for implementing the controversial anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) state that GAAR provisions should be invoked on a foreign institutional investor (FII), if it chooses to take a treaty benefit, but would not in any case be invoked in the case of the non-resident investors of the FII. The draft guidelines suggested that the onus of proving wrongdoing should be on the authorities. Finance Minister P. Chidambaram will reportedly review the performance of public sector banks (PSB) on August 18 amid slowdown in economy and concerns over rising bad loans. The meeting of Finance Minister with heads of PSU banks will deliberate on non-performing assets (NPAs), agriculture loans, credit to the infrastructure sector and matters related to human resource. This will be the first meeting of Mr. Chidambaram with the chiefs of PSU banks since taking over as the Finance Minister on August 1. On the global front, Greek Prime Minister Antonis Samaras is set to meet German Chancellor Angela Merkel in Berlin on Friday, 24 August 2012, and will visit French President François Hollande on Saturday, 25 August 2012. Samaras is reportedly prepared to sound out Merkel on his call to stretch the implementation of new austerity measures over four years rather than the two years agreed as part of second bailout for Greece. Greek news reports, however, said Samaras wouldn't formally request an extension until a meeting of European Union leaders in October 2012. Samaras campaigned on that pledge as his center-right New Democracy party eked out a first place finish in June's parliamentary elections over the left-wing Syriza party, which had vowed to tear up the austerity provisions altogether. Federal Reserve Chairman Ben Bernanke is scheduled to talk on 31 August 2012 at the Kansas City Federal Reserve Bank's annual symposium in Jackson Hole, Wyo.