Summers 2012

FIN FAST TRACK

Team NETWORTH

Mayank Mishra Aadit Devanand

Achin Agarwal Abhishek Agarwal

Ajusal Sugathan Duhita Shrikhand

Bhanu Prakash Gupta Lavanya Pandey

Madhukar Bhardwaj Meenal Pravin Raje

Pratul Varshney Nikhil Pradeep Jalan

Sudeep Mohapatra Pratik Jaipuriar

Vanshika Chawla Shruti Pramod Kumar

Contents Around the World ................................................................................................................................... 1

Federal Reserve announces Quantitative Easing 3 (QE 3) ..................................................................... 1

Dr. Doom’s predictions for 2013 .......................................................................................................... 2

The Libor Scandal ................................................................................................................................ 3

Economic interest in South China and East China Sea .......................................................................... 5

Can USA learn from Canada? ............................................................................................................... 6

European Debt Crisis ........................................................................................................................... 7

Why the world economy cannot afford an Iran Israel war .................................................................... 8

What’s happening with the BRICs? ...................................................................................................... 9

US Elections – Does the outcome matter to the economy? ................................................................ 10

Russia’s finally in the WTO ................................................................................................................. 11

Indian Macro ......................................................................................................................................... 13

RBI’s Policy Stance ............................................................................................................................. 13

Inflation ............................................................................................................................................. 14

RBI holds repo rate despite "big bang" reforms ................................................................................. 14

S&P lowers India's outlook to negative, threatens downgrade ........................................................... 15

Rupee fall: Reserve Bank of India can do little to help ........................................................................ 16

Rupee gains for fifth week; govt raises reforms ante.......................................................................... 17

Govt allows FDI multi-brand retail, aviation in bold reform push ........................................................ 17

Cabinet clears insurance, pension FDI bills ......................................................................................... 18

IMF cuts India growth forecast to 6 per cent for 2013 ........................................................................ 18

India's economic growth languishes, worst may be over .................................................................... 19

Union Budget 2012-2013 – Macroeconomic Perspective ................................................................... 20

M&A ..................................................................................................................................................... 22

Asia-Pacific Deals ............................................................................................................................... 22

Top 15 Asia Deals YTD .................................................................................................................... 23

Top 5 India Deals in 2012 ............................................................................................................... 25

Top 10 India Deals in 2011 ............................................................................................................. 25

Global Mergers and Acquisitions scenario.......................................................................................... 27

Global Largest Mergers and Acquisitions Deals by deal value ......................................................... 31

Details of Top 10 M & A deals ........................................................................................................ 33

Markets ................................................................................................................................................. 38

Markets at a Glance ........................................................................................................................... 38

June 2012 ...................................................................................................................................... 39

July 2012 ....................................................................................................................................... 40

August 2012 .................................................................................................................................. 41

September 2012 ............................................................................................................................ 42

1

Around the World

Federal Reserve announces Quantitative Easing 3 (QE 3)

The Federal Reserve has released its statement and the central bank actually did two things to try and

improve QE3. First, the Fed will keep short-term interest rates low until mid-2015. Second, the central

bank will buy up $85 billion worth of assets each month between now and the end of the year. But,

unlike QE1 or QE2, this new round of purchases will be more open-ended. That’s an important change.

Here’s the key bit from the Fed statement: If the outlook for the labour market does not improve

substantially, the Committee will continue its purchases of agency mortgage-backed securities,

undertake additional asset purchases, and employ its other policy tools as appropriate until such

improvement is achieved. The purchases will continue until morale improves. What’s more, the Fed

noted that it will continue its policy of easy money “for a considerable time after the economic recovery

strengthens.”

What is QE?

Usually, central banks try to raise the amount of lending and activity in the economy indirectly, by

cutting interest rates. Lower interest rates encourage people to spend, not save. But when interest rates

can go no lower, a central bank's only option is to pump money into the economy directly. That is

quantitative easing (QE). The way the central bank does this is by buying assets - usually government

bonds - using money it has simply created out of thin air. The institutions selling those bonds (either

commercial banks or other financial businesses such as insurance companies) will then have "new"

money in their accounts, which then boosts the money supply.

How does it work?

Under QE a central bank purchases government bonds from private sector companies or institutions,

typically insurance companies, pension funds and High Street banks. This increased demand for the

government bonds pushes up their price, thereby making them more expensive to buy, and so they

become a less attractive investment. This means that the companies who sold the bonds may use the

proceeds to invest in other companies or lend to individuals, rather than buying any more of the bonds.

The hope is that with banks, pension funds and insurance firms now more enthusiastic about lending to

companies and individuals, the interest rates they charge fall, so more money is spent and the economy

is boosted.

Hasn’t the Fed already tried quantitative easing?

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Yes, twice in fact. In late November 2008, after the financial crisis hit, the Fed started buying up

mortgage-backed securities and Treasury bills in order to boost the economy. By June of 2010, the bank

had bought about $2.1 trillion worth of assets. At this point, the Fed halted its actions, figuring that it

had done enough. But when the economy started weakening that summer, Bernanke resumed the

program in August 2010, buying up Treasury bonds in order to maintain the Fed’s balance sheet.

(Remember, the bank is holding a bunch of debt that slowly matures so if the Fed does nothing, all that

money it had injected into the economy will eventually get sucked back out again.) This was known as

“QE2.”

Did QE1 and QE2 actually boost the U.S. economy?

Academics have been churning out plenty of research on this question. The first round of quantitative

easing appeared to be effective in preventing the economy from sinking into a giant depression.

Economists say this was because everyone realized the Fed would do whatever it takes to avoid

deflation. It was essentially a giant confidence boost. The economy stopped sliding and inflation slowly

rose. But the effects seemed to dwindle as the years went by. Experts are much more divided on how

much QE2 has helped. In theory, quantitative easing should work in two ways. First, it injects more cash

into banks, allowing them to lend more. And second, it lowers interest rates — if the Fed buys up a

bunch of mortgage-backed securities, for example, that should make it cheaper to borrow money to buy

a house. In practice, interest rates do drop. But it’s hard to figure out whether this translates into a

boost in the actual economy. After all, low mortgage rates can only do so much if banks are scarred by

the housing bubble and remain tight-fisted about lending.

Dr. Doom’s predictions for 2013

A robust and self-sustaining U.S. recovery is not on the cards, and we should now expect below trend

growth for many years to come, according to Nouriel Roubini, the economist famed for his bearish

views.

“Even this year, the consensus got it wrong, expecting a recovery to annual GDP growth of better than 3

percent,” the founder of Roubini Global Economics wrote. “And now, after getting the first half of 2012

wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales,

recovering house prices, and a resurgence of U.S. manufacturing will boost growth in the second half of

the year and fuel above-potential growth by 2013.” Roubini believes the U.S. economy will slow further

this year and next as expectations of the “fiscal cliff” keep spending and growth lower — and

uncertainty about the outcome of the presidential election dogs markets.

The fiscal cliff could knock 4.5 percent off 2013 growth if all tax cuts and transfer payments were

allowed to expire and spending cuts where triggered, according to Roubini.

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“Of course, the drag will be much smaller, as tax increases and spending cuts will be much milder. But,

even if the fiscal cliff turns out to be a mild growth bump — a mere 0.5 percent of GDP — and annual

growth at the end of the year is just 1.5 percent, as seems likely, the fiscal drag will suffice to slow the

economy to stall speed: a growth rate of barely 1 percent,” he wrote.

The U.S. consumer, which drives plenty of the global economy as well as the U.S., will not be able to

keep spending when $1.4 billion worth of tax cuts and extended transfer payments come to an end

according to Roubini. “In 2013, as transfer payments are phased out, however gradually, and as some

tax cuts are allowed to expire, disposable income growth and consumption growth will slow. The U.S.

will then face not only the direct effects of a fiscal drag, but also its indirect effect on private spending,”

he wrote.

The problems in the euro zone, a slowdown in China and emerging markets, added to the chance

that oil prices could be driven higher by tensions over Iran’s nuclear program, will also add to America’s

economic woes, Roubini argued. He warned the Fed will not be able to ride to the rescue this time.

“The U.S. Federal Reserve will carry out more quantitative easing this year, but it will be ineffective:

long-term interest rates are already very low, and lowering them further would not boost spending,” he

wrote. “Indeed, the credit channel is frozen and velocity has collapsed, with banks hoarding increases in

base money in the form of excess reserves. Moreover, the dollar is unlikely to weaken as other

countries also carry out quantitative easing.”

Roubini also argued that earnings growth is now beginning to run out of steam, after buoying markets

earlier in the economic cycle. The second-quarter earnings season has so far presented a mixed

picture. “A significant equity-price correction could, in fact, be the force that in 2013 tips the US

economy into outright contraction. And if the U.S. starts to sneeze again, the rest of the world — its

immunity already weakened by Europe’s malaise and emerging countries’ slowdown — will catch

pneumonia,” he warned.

The Libor Scandal

Allegations that the major banks colluded in suppressing their funding costs to appear healthier than

they actually were during the financial crisis of four years ago, and the manipulation of rates through an

opaque setting process, have come to a head with the resignation of Barclays CEO Bob Diamond.

Diamond admitted to manipulating the rates at his firm, which incurred a $450 million (290 million

pound) fine. COO Jerry Del Missier and Chairman Marcus Agius stepped down as well, which was also

followed by 20 banks undergoing investigation, including Citigroup, UBS, RBS, BOA, JP Morgan, HSBC,

Deutsche Bank and Credit Suisse.

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Greg Smith resigning from Goldman Sachs in disgust at a culture gone awry, JP Morgan admitting to a

botched hedging strategy in its Chief Investment Office, MF Global collapsing beneath the weight of bad

trading and a failure to protect its clients, Fabrice Tourre, Jérome Kerviel and Kweku Adobole caught out

in bad trades and now this. Has scandal become sufficiently commonplace in the banking community

that, like a road show, we can pick it up anywhere? Has the culture of serving clients been turned on its

head? There would most definitely appear to be something wrong somewhere.

The London Interbank Offered Rate (LIBOR) and its Brussels and Japanese equivalents (the European

Interbank Offered Rate (EURIBOR) and the Tokyo Interbank Offered Rate (TIBOR), respectively) are set

through a process whereby each day about 40 banks submit their interest rates at which they are willing

to lend, to the respective trade organizations in their regions. Once the high and low bids are discarded,

the rates of the two middle quartiles are arithmetically averaged. This process is repeated about 150

times to determine the final rates each day and extends to 10 currencies and across 15 time zones.

The interbank offered rates serve as a reference for the pricing of financial products worth $350 trillion

that include floating rate mortgages, savings accounts, interest rate swaps, other OTC derivatives,

student loans, corporate loans and credit cards.

Barclays and allegedly other banks during the 2007-2009 period and earlier, took into account traders'

requests for them to submit, and submitted artificially low LIBOR rates so as to project an appearance of

strength to one another in parlous circumstances and roiled markets. One could make a potential case

for such posturing being in the public interest. The other motivation to do so was to boost traders'

profits. The rate-setting process appears, at best, translucent and arbitrary, and at worst, potentially

fraudulent.

The consequences of perceived malpractice will be palpable across several fronts. Individual and

institutional consumers alike who use any of the numerous financial products based off LIBOR may have

been paying artificially low rates, depending upon how widespread the practice will turn out to have

been. Redress, if any, will have to be determined.

Moody's Weekly Credit Outlook has shifted to a negative outlook in light of these events, expressing

concern about a potential shift away from investment banking and difficulty in finding a suitable

replacement for Bob Diamond, who would be facile in investment banking and credible in his or her

ability to rectify internal lapses.

To the regulators, the scandal is but more fodder for greater oversight. Indeed, the Commodity Futures

Trading Commission (CFTC) is working with Barclays to develop a more transparent and robust rate-

setting process. Compliance officers would need to exercise better supervision. When traders brazenly

thank each other with the promise of a fine tipple over monitored email, they are nonchalant or blithely

unaware. Apparently, they missed the meeting and need retraining, if they haven't been taken to the

woodshed already. It appears that mission control has given way to missing control.

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Economic interest in South China and East China Sea

Although nationalistic ardor on both sides of the dispute have brought the current situation to a boil,

national interest in the territory can be traced to a 1969 United Nations geological survey that contains

this tantalizing line: "A high probability exists that the continental shelf between Taiwan and Japan may

be one of the most prolific oil reserves in the world."

Also under its South China Sea lie potentially huge reserves of natural gas and oil. A Chinese estimate

suggests as much as 213 billion barrels of oil lie untapped in the South China Sea - which, if true, would

make it the largest oil reserves outside of Saudi Arabia, according to the U.S. Energy Information

Administration.

At the heart of all these island disputes in China Seas is a term of international maritime law known as

"Exclusive Economic Zone," where nations are allowed sole rights to fish and develop resources within

200 nautical miles of a country's shores. That has created interest in nation's grabbing uninhabited

islands - often little more than rocky atolls - to thereby extend their zone.

"The area is starting to look a little bit like Alaska, at first looked worthless, now may not be worthless,"

Valencia said. "The East China Sea is virtually all continental shelves, which means it's all relatively easy

digging except in typhoon season."

But the likelihood the areas will be developed dwindles as the political storm brews between China and

Japan. If this fracas follows past contretemps, the two sides will cool for a few months before

rapprochement from high-level officials on both sides. But with the leadership change coming in China,

and leadership elections imminent in Japan's two major parties, the likelihood is tensions will remain

high. "No one wants to be perceived as soft on China," Manicom said. Meanwhile, as historic enmities

over Japan's war past inflame tensions in China; public sentiment is changing in Japan toward China.

"The result is the average Japanese person views China with more suspicion than the past," Manicom

said. "You can now be anti-China in Japan and not be conservative, which is a development that I think,

took Beijing by surprise."

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Can USA learn from Canada?

Canada has some lessons for the United States in terms of slashing deficits and winning top tier ratings

back, but there are deep differences between the two countries in terms of what might work. The

Liberal government won broad political support for its efforts to cut the deficit in the decade after its

first international ratings downgrade in 1992, but the United States faces deep political divisions about

how to respond.

Ottawa’s chosen route back to surplus involved both spending cuts and tax hikes, in a ratio of roughly

seven to one. The budget was balanced within six years, and Canada won its prized AAA rating back

within a decade. Martin, a former prime minister, said he was confident the United States could balance

its budget, but it would need tax hikes as well as spending cuts. “The actions have to be primarily on

cutting expenditures, but the fact is that you cannot do it unless everybody is willing to come to the

party, and if you eliminate tax increases… you’re never going to make it.” Tough advice also came from

Monte Solberg, who was finance critic for the conservative opposition Reform Party during Martin’s

deficit-cutting years.

In a display of inter-party co-operation that’s rare outside wartime, Reform backed the Liberals as they

cut the deficit, ushering in an era where it became political suicide for a federal Canadian politician even

to talk about running a deficit.

Canada’s debt headaches with international rating agencies started in 1992 as first Standard & Poor’s

and then Moody’s (in 1994) lowered its debt ratings, alarmed about rising public debt levels along with

concern that a separatist movement in French-speaking Quebec could tear the country apart. The Wall

Street Journal rubbed salt in the wounds, with a January 1995 editorial that called Canada “an honorary

member of the Third World.” With Canada’s debt-to-GDP ratio heading for a record 72 percent, the

moniker stung. The budget cuts were painful — health care was hit especially hard — but the political

will never faltered.

But there are many reasons the Canadian model won’t work for Washington right now, including the

political deadlock, the vast burden on U.S. government spending from the hard-to-cut military complex,

and the fact that the overall world economy is in far more fragile shape than it was in the 1990s, when

the United States also ran a budget surplus.

“We’re recovering from a global credit market meltdown, a Great Recession The U.S. has been at war

for more than 10 years, so the economic fundamentals are far different, and so the accumulated deficits

that the U.S. has on its balance sheet will be difficult to address by economic growth,” said Queen’s

University finance professor Louis Gagnon. “There doesn’t seem to be any clear line of sight towards a

balanced budget. We’re seeing trillion-dollar deficits for almost as far at the eye can see.” The U.S.

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budget deficit has soared to $1.4 trillion or 9 percent of GDP. Canada’s deficit never climbed above 6

percent of GDP, a more manageable number.

Moody’s Investor Services, whose 1995 second downgrade of Canada was often seen as the low point in

the country’s budgetary problems, said Ottawa’s evangelistic approach to not running up a deficit had

been a factor in the agency’s decision to give back the AAA rating in May 2002.

“We were convinced that the debt reduction program was going to continue over the medium term

because there was a political consensus on that. We believed that no matter which major party was in

power that they would continue with that” said Steven Hess, lead analyst for the United States and

Canada at Moody’s.

“Just as a peculiarity, among the 16 countries that we have rated triple A, the U.S. is the only one that

doesn’t have a parliamentary system. Now whether that’s good or bad is a subject for discussion, I’m

not opining one way or the other, just pointing it out.”

European Debt Crisis

The European sovereign debt crisis continues to be a major concern in the world economy with a

solution nowhere in sight. This year saw many events in the Eurozone that highlighted the acuteness of

the problem and even brought Euro dissolution to the forefront. While the leaders of the Eurozone say

that they are ready to do whatever it takes to save the Euro, a lot of experts believe that a breakup of

the Eurozone is in everyone’s best interest. The debt crisis began when in late 2009 the new

government in Greece revealed that its predecessors had concealed huge amounts of debt. By early

2010, Greece was unable to borrow capital at affordable rates and a series of bailout packages totaling

over 100 billion euros was devised by the so called troika – EU, IMF and ECB. In 2010, similar crises

emerged in the countries of Ireland and Portugal. The crisis became a lot more significant when in 2011

two vastly larger economies revealed debt issues – Italy and Spain.

In February 2012, the Eurozone leaders agreed on a number of measures designed to prevent the

collapse of member economies. These included an agreement whereby banks would accept a 53.5%

write-off of Greek debt owed to private creditors, increasing the European Financial Stability Facility

(EFSF) to about 1 trillion euros, and requiring European banks to achieve 9% capitalization.

Angela Merkel, Chancellor of the most dominant country in the EU, maintained her push for austerity in

return for aid to struggling nations. Unemployment soared in these countries and there was an

increasing resentment towards austerity. Governments fell in a number of European countries on these

issues. Perhaps the most significant political development was in France, where a Socialist, Francois

Hollande was elected to power. In Greece the parties that supported the austerity measures took a

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beating in the elections, while a left-wing party that opposed the measures came to the fore. However

no party was able to form a government and towards the middle of the year, fears of a “Grexit” started

growing. The possibility of same happening elsewhere increased the pressure on weak banks.

In June, Mario Draghi, the President of the ECB called for a bank regulation while Germany suggested

pooling the continent’s bad debt into a single fund. In June, Spain became the fourth European nation to

accept a bailout. The seemingly endless crisis has led to calls for a banking union to be created, however

not everyone in Europe, especially the financially strong nations are game for this idea. Inter-bank

cooperation is at its lowest level since the creation of Euro.

Some important steps were taken towards rescuing the Eurozone at a summit meeting in Brussels in

June. EU officials decided that the bailout money could be provided directly to Spanish banks in need of

a rescue instead of routing it through the government. The EU leaders also agreed to work towards

creating a common banking supervisor for the continent.

However the recession in Europe has not bottomed out yet. Many experts believe that if the leaders are

just trying to postpone the breakup of the Eurozone then delaying the inevitable would merely make

matters worse.

Why the world economy cannot afford an Iran Israel war

Iran and Israel have had strained relations for a long time but with the development of nuclear

technology in Iran, these relations have hit an all time low. The two countries have been threatening to

attack each other – Iran wants to wipe out Israel and Israel wants to get rid of Iran’s nuclear facilities.

With the world economy in the uncertain state that it is in today the last thing it needs is a war between

Iran and Israel. It has the potential to be more disastrous than any other previous conflicts that have

taken place in the Middle East. All previous conflicts among nations that are oil producers have caused

serious oil price spikes. And be it the Iran-Iraq war in 1980 or the Persian Gulf War of 1990, each of them

was followed by a decline in the oil prices and an economic recession in the United States.

The strategic importance of the region is highlighted by the volume of oil that passes through the Strait

of Hormuz off the Southern coastline of Iran.

“About 14 tankers carrying 17 million barrels of crude oil pass daily through the Strait of Hormuz, which

is 39km wide at its narrowest. This total represents 35 percent of the world’s seaborne oil shipments

and 20 percent of oil traded worldwide.”

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Iran has threatened that in case Israel attacks it will close down this strait and shut down the whole

Persian Gulf. If that happens we could be back to the USD 150 per barrel price levels and that is

something that the world economy can do without right now. Whether Iran has the capabilities to close

down the strait is debatable but it is a risk that is not worth taking. The direct economic impact of the

conflict on these two countries will also be huge and potentially debilitating for the Iranian economy.

The sanctions imposed by US on Iran as of now itself are putting a big strain on its economy. Even the

European Union has banned its members from importing oil from Iran.

“The sanctions are having a crippling effect on Iran’s economy. Oil exports have fallen 40 percent in

2012, according to the International Energy Agency, costing the country nearly US$32 billion and the

value of the Iranian rial falling by 40 percent since last year. Inflation is rampant, unemployment is

soaring and bankruptcies are proliferating.”

In case of a war, some estimates say that the cost to the Israeli economy could be as high as 20% of its

GDP. While the economic effects will be devastating the other fallout from the conflict would be the

possible rise of sectarian tensions across the Middle East. And adding more instability to an already

volatile Middle East would definitely lead to oil price spikes that are unaffordable for the world

economy.While we can just wait and watch how the situation unfolds, one can only hope that the game

of brinkmanship between Iran and Iraq does not lead to a full-fledged war.

What’s happening with the BRICs?

Ever since the ‘BRIC’ was formed in 2001 the member countries have grown rapidly. The member

countries combined now account for about a quarter of the world’s economic output. Each of these

countries more or less survived the financial crisis of 2008 and kept growing at healthy rates. However,

they are now showing signs of slowing down. Each country is facing its own set of problems and all are

feeling the effects of the developments in Europe. Most experts believe that the BRIC nations will not be

able to match the performance of the past decade in the next decade.

While the slowdown in Europe and US is no doubt affecting these nations there are certain factors

specific to each country that is hampering their growth. We will look at some of these country specific

factors.

Brazil’s growth over the years has been fuelled by the credit fuelled consumer boom. The high yields and

relatively strong growth were reasons enough to sustain a constant inflow of foreign capital, but that

also caused the Brazilian real to soar to uncompetitive levels. As a result the growth of private debt has

outpaced the growth of income and Brazil’s consumer default rate has risen to alarming levels. As a

result some analysts have reduced Brazil’s growth forecast to as low as 1.64% in 2012, down from the

7.5% growth registered in 2010.

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Russia has been plagued by corruption and its dependence on commodities in general and oil in

particular. It depends heavily on world demand and a poor world economy affects Russia. Russia can

only hope that its recent entry into the WTO helps to improve the situation.

India is again a country reeling under the effects of corruption. GDP growth in the country has slowed

down considerably and the so called policy paralysis of the UPA government has been criticized by one

and all. Its fiscal deficit is starting to get out of control with the government set to miss the target for the

second year in a row. There have been some positive measures that have been taken recently like the

opening up of the multi-brand retail and aviation to FDI which we can hope will lead to renewed

investor interest in the country.

China is perhaps the best performing BRIC country but even it is starting to show signs of slowing down.

While everyone is talking about the debt problems in US and Europe there is a serious debt problem in

China which is now starting to be felt. The Chinese economy is over reliant on state driven investment

and this has caused a serious imbalance in the economy. To add to that the property bubble that has

been created in the country over the past few years has popped. Home prices have started to decline for

the past one year and the decline in China’s growth rate has been attributed to a certain extent on this

factor.

The BRIC nations face a period of reckoning today. They are no longer able to recreate the success

stories of the last decade. While they are all affected by the world economy, there are certain issues

within each country that they need to address in order to make sure that their economic growth

continues. If they fail to do so the BRIC would no longer remain relevant in the years to come.

US Elections – Does the outcome matter to the economy?

The United States will go to poll in November 2012 to elect its next President. The incumbent Barack

Obama is up against Republican Mitt Romney. While the world is closely following the election campaign

trail one needs to pause for a while and question whether who wins the elections will have any material

impact to the world economy.

While economic policies suggested by the two candidates might play a significant role in deciding the

outcome of the elections the possibility of pursuing significantly different economic policies is a lot more

uncertain. The American economy will be growing at a very slow rate next year (provided that it grows)

and will still be facing its most important and long standing problem of high unemployment. The fiscal

deficit continues to be at unreasonable levels and the global environment next year is not forecasted to

get any better.

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So, irrespective of which candidate prevails, both will have the same problems of stabilizing the

economy and implementing reforms to improve the fiscal state of the country. In striking the right

balance between immediate economic stimulus and medium-term fiscal sustainability, the most urgent

step will be to counter properly the looming fiscal cliff, as temporary tax cuts expire and deep, across-

the-board spending reductions kick in automatically. Failure to do so would significantly increase the risk

of an outright American recession.

Serious medium-term budget reforms are needed to deal with the legacy of repeated congressional

failures. And, if provided with realistic numbers, the next president will soon recognize that the right mix

of tax and spending reforms falls into a much narrower range than today’s competing political narratives

suggest. It is certainly not an either/or proposition.

But this does not mean that there is no scope for differences. This is an election about social

responsibility – a society’s obligation to support those who are struggling, through no fault of their own,

to find jobs and make ends meet. It is about protecting the most vulnerable segments of society,

including by providing them access to proper health coverage. It is about reforming an education system

that fails America’s young people (and about providing appropriate retraining to those who need it).

Among the numerous issues of fairness and equality, it is about the rich giving back to a system that has

brought them unimaginable wealth. It is here where the differences between Obama and Romney are

important.

While the elections are important for the United States in terms of the social policies that the candidates

might adopt, there is really not a great deal of difference between how their economic policies will

affect the economy.

Russia’s finally in the WTO

After nearly two decades of negotiation Russia, the sixth largest economy in the world finally entered

the World Trade Organization. It officially became a member on 23rd August 2012. It was the only

member of the G8 group of nations that was outside the WTO prior to that. Its entry opens up trading

opportunities for Russia as well as the rest of the world.

As per the WTO agreements Russia must reduce trade barriers that discriminate against foreign goods

and services. Foreign countries on the other hand too have to remove such barriers against Russian

goods. This will open up major trading opportunities especially considering the size of the Russian

economy. With a GDP (PPP) of USD 1.86 trillion, Russia is the sixth largest and the third fastest growing

economy in the world.

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The sectors that are going to be impacted the most from these changes are agriculture, primary

industries and services. The tariff on agricultural goods is expected to come down from 13.2 percent to

10.8 percent. Russian farmers will get access to international markets due to removal of export bans. It

will also open up opportunities for trade for suppliers of agricultural inputs.

Russia is heavily dependent on its export of natural resources. While there are no barriers to its exports

like oil, gas and coal there are significant barriers as far as processed metals are concerned. Now,

countries will have to remove these barriers and this will open up tremendous trading opportunities for

the metal processing industry.

Russia’s services industry is very inefficient going by the world standards. Opening up of the economy

will bring in more competition and also lead to foreign ownership of a number of services. This will help

to improve the efficiency of the services sector and thus enhance the state of the Russian economy.

The opportunities of trade growth arising out of Russia’s entry into the WTO is huge and can be

expected to have a significant impact on shaping the dynamics of the world economy in the years to

come.

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Indian Macro

RBI’s Policy Stance

Keeping in view the slowdown in growth, the Reserve Bank front-loaded the policy rate reduction in

April with a cut of 50 basis points. Subsequent developments suggested that even as growth moderated,

inflation remained sticky. Keeping in view the heightening risks to inflation, the Reserve Bank decided to

pause in the Mid-Quarter Review (MQR) of June 2012, even in the face of slowing growth.

Against the backdrop of global and domestic macroeconomic conditions, outlook and risks, the policy

stance is shaped by three major considerations.

First, after moderating for a short period during December-January, headline WPI inflation edged up

again beginning February 2012 and has remained sticky, above 7 per cent, on account of increase in

food prices, increase in input costs, and upward revision in prices of some administered items such as

coal. Headline inflation has persisted even as demand has moderated and the pricing power of

corporates weakened. Non-food manufactured products inflation has also not declined to the extent

warranted by the growth moderation. This reflects severe supply constraints and entrenchment of

inflation expectations.

Second, growth decelerated significantly to 6.5 per cent in 2011-12. Although more recent data suggest

some pick up, overall economic activity remains subdued. Importantly, the current growth performance

has to be seen in reference to the trend rate of growth in order to assess its inflationary implications. In

this context, investment activity has remained subdued over the last two years. External demand has

also remained weak due to the slowdown in global growth. Consequently, the post crisis trend rate of

growth, which was earlier estimated at 8.0 per cent, has dropped to 7.5 per cent. While the current rate

of growth is clearly lower than trend, the output gap will remain relatively small. Under these

conditions, demand pressures on inflation can re-emerge quite quickly, exacerbating the existing supply

pressures.

Third, liquidity conditions play an important role in the transmission of monetary policy signals.

Although the situation has eased significantly in the recent period, it is necessary to ensure that liquidity

pressures do not constrain the flow of credit to productive sectors of the economy.

Against this backdrop, the stance of monetary policy is intended to:

contain inflation and anchor inflation expectations;

support a sustainable growth path over the medium-term; and

continue to provide liquidity to facilitate credit availability to productive sectors.

14

Inflation

In the April Policy, the Reserve Bank made a baseline projection of WPI inflation for March 2013 of 6.5

per cent. This was based, in part, on an assumption of normal monsoon. The deficient and uneven

monsoon performance will have an adverse impact on food inflation. Notwithstanding some

moderation, international crude oil prices remain elevated. This, coupled with the pass-through of rupee

depreciation to import prices, put upward pressure on domestic fuel price inflation. In addition, with the

adjustment of domestic prices of petroleum products to international price changes still incomplete,

embedded risks of suppressed inflation could also impact fuel prices in India going forward. The decline

in non-food manufactured products inflation has not been commensurate with the moderation in

growth. Input price pressures on account of exchange rate movements and infrastructural bottlenecks in

coal, minerals and power may exert upside pressure on non-food manufactured products inflation.

Keeping in view the recent trends in food inflation, trends in global commodity prices and the likely

demand scenario, the baseline projection for WPI inflation for March 2013 is now raised from 6.5 per

cent, as set out in the April Policy, to 7.0 per cent.

Although inflation has remained persistently high over the past two years, it averaged around 5.5 per

cent during the 2000s, both in terms of WPI and CPI, down from its earlier trend rate of about 7.5 per

cent. Given this record, the conduct of monetary policy will continue to condition and contain

perception of inflation in the range of 4.0-4.5 per cent. This is in line with the medium-term objective of

3.0 per cent inflation consistent with India’s broader integration into the global economy.

Headline inflation accelerated to 7.55% in August, the fastest pace in the BRIC group of largest emerging

nations, which also includes Brazil, Russia and China. Ahead of the central bank's next policy review on

October 30, the effort will be to rein in inflation but support growth to the extent possible.

RBI holds repo rate despite "big bang" reforms

The Reserve Bank of India (RBI) left interest rates unchanged but cut the cash reserve ratio for banks

during its Mid quarter review in month of September, disappointing market hopes that it would follow

up the government's unexpected spate of bold reform measures by reducing borrowing costs.

While the Reserve Bank of India praised New Delhi's long-stalled policy initiatives to bolster growth and

shore up its creaking fiscal position, it said the primary focus of monetary policy remained fighting

stubbornly high inflation.

The government, in turn, made clear it wants a rate cut at the bank's next monetary policy review in six

weeks time, and said it was not yet finished with reforms. "I am very confident that between now and

15

October 30, since the government is expected to take a number of additional policy measures and also

lay out the path of fiscal correction, the response of RBI on October 30 will be far more supportive of

growth," Finance Minister P. Chidambaram told reporters.

The central bank held its policy repo rate at 8 percent. Several economists said their expectations for

when the RBI, which has two more policy reviews scheduled this year, might cut rates remained

unchanged. The most recent Reuters poll forecast a median 25 basis point rate cut by the end of 2012.

"The RBI is still focused on managing inflation. Future moves will be a function of how the government

sorts out the fiscal mess," said Rajeev Malik, senior economist at CLSA in Singapore.

Ratings agency Standard & Poor's, which earlier this year threatened to cut India's rating to junk, also

offered a cautious response to the government's reform efforts, saying the moves on foreign investment

were encouraging but that it remained to be seen whether they could be implemented.

The RBI cut the cash reserve ratio, the share of deposits banks must keep with it, by 25 basis points to

4.5 percent in a move to inject about 170 billion rupees into the banking system ahead of expected

liquidity tightness due to advance tax payments and festive-season demand.

"The government's recent actions have paved the way for a more favourable growth-inflation dynamic

by initiating a shift in expenditure away from consumption (subsidies) and towards investment," the RBI

wrote in its policy statement. "However, in the current situation, persistent inflationary pressures

alongside risks emerging from twin deficits - current account deficit and fiscal deficit - constrain a

stronger response of monetary policy to growth risks," the RBI said.

The RBI has held borrowing costs steady since a deeper-than-expected 50 basis point cut in April, and

has repeatedly called on the government to do its part by improving its fiscal position, which had fuelled

some expectations that it might cut rates as a gesture in reply to the government's moves. But a spike in

August inflation data, from July's near three-year low appeared to put paid to any hopes the diesel price

hike and other reforms might persuade the RBI to move on rates.

Meanwhile, the U.S. Federal Reserve's aggressive stimulus plan last week complicates the RBI's task, as

the injection of liquidity delivered by the Fed's measures may push up global commodity prices and add

to inflationary pressures in India.

S&P lowers India's outlook to negative, threatens downgrade

Ratings agency Standard & Poor's cut India's outlook to negative from stable, citing slow progress on its

fiscal situation, as well as deteriorating economic indicators. The lowered outlook jeopardises India's

16

long-term rating of BBB-, which is the lowest investment grade rating. S&P has threatened to

downgrade India's rating in next 2 years if the fiscal situation does not improve.

"The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the

external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms

remains slow in a weakened political setting," S&P credit analyst Takahira Ogawa said in a note.

S&P is of the opinion that the Indian government will face headwinds in implementing key policy

measures. The rating agency sees a weaker medium term credit outlook for the economy. S&P also

expects the real per capita GDP to be at 5.3% in FY13. According to S&P only a modest progress in fiscal

reforms is foreseeable and that policy reversal by the government may diminish FII confidence.

India's 10-year bond yield rose 4 basis points to 8.63 per cent, while the rupee weakened to 52.64

against the dollar from 52.48 before the action. Stocks were also hit, with the main BSE index down 0.9

per cent.

India's fiscal deficit swelled to an expected 5.9 per cent of GDP in the fiscal year that ended in March, far

above the government's 4.6 per cent target.

Rupee fall: Reserve Bank of India can do little to help

As if sticky inflation isn't worry enough, the Reserve Bank of India (RBI) has to deal with the sliding

rupee. At 53.9225 to the dollar on May 4, the rupee has weakened by 20.93 per cent in a year. The

exchange rate was 44.59 on May 4 last year.

More than the magnitude of the rupee's depreciation, it is the speed of the decline that is troubling RBI.

The recent slide has not caught the central bank unawares. Last year, when the greenback gained, the

exchange rate reached 54.305 rupees to the dollar on December 15, 2011. This was an all-time low for

the rupee, which had hit a year's low of 43.855 on July 27 - a 23.83 per cent drop in 91 trading days.

Venugopal Dhoot, Chairman of the Videocon Group, says one of the reasons for the rupee's decline is

that investment inflows are thinning as investor confidence fades. Exporters benefit in such a scenario,

while importers and borrowers with liability in foreign currency suffer. "Companies take view of the

direction of currency movement and then decide to hedge," says RBI Deputy Governor Anand Sinha. But

not all companies hedge, so the declining currency is likely to hit many bottom lines.

Oil imports are where a weak rupee hurts India the most. At $155.6 billion, oil accounted for nearly 32

per cent of total imports ($488.6 billion) in 2011/12. A weak rupee increases the import bill and cancels

out the benefit of any decline in global crude prices. The Indian rupee is not the only currency to slide

against the dollar. The Brazilian real, South African rand, Indonesian rupiah and South Korean won have

17

all weakened. The reason India's case is more serious, however, is the trade and current account

deficits. For 2011/12, the trade deficit is estimated at $184.92 billion - nearly 56 per cent higher than the

previous year's $118.63 billion.

Rupee gains for fifth week; govt raises reforms ante

The Indian rupee rose to a near six-month high in opening trade on Friday after the government took

more reform measures to attract foreign investment. The falls on Friday end a five-day winning streak,

with analysts warning of some consolidation, especially with U.S. monthly jobs data due later in the day

and in the run-up to the Reserve Bank of India's policy review at the end of the month.

The rupee has gained for five consecutive weeks, ever since India's reform drive began last month. The

initiatives continued on Thursday after the government announced proposals to attract foreign

investment into the pension and insurance sectors.

"Most of the news about reforms is now discounted by the market. Now actual flows have to take place

for further direction," said Hari Chandramgathan KK, a dealer at Federal Bank. "Expect some

consolidation towards 52.40/53.20 levels before next major move."

Govt allows FDI multi-brand retail, aviation in bold reform push

After months of dithering on the economy, India's beleaguered government roared back to life in

dramatic fashion on Friday, announcing big bang reforms as part of package of measures aimed at

reviving growth and staving off a ratings downgrade.

A day after sharply increasing the price of heavily subsidized diesel by 14%, the government said it was

opening up its supermarket sector to foreign chains and would allow more foreign investment in airlines

and broadcasters. It also approved the sale of stakes in four state-run industries. Facing the threat of

having its credit rating downgraded to junk, the Indian government has been running out of time to

show it is serious about fixing an economy that has been hard-hit by a global economic crisis and

political gridlock at home.

The government has championed the policy as a way to unclog supply bottlenecks that cause a third of

fresh produce to rot before it reaches an Indian table. It is hoped global chains will offer better prices to

farmers by cutting out middle men, while also pumping investment into cold storage facilities.

But it will also come with stiff riders. Foreign retailers will only be allowed to set up in cities with a

population of more than 1 million, and must source at least 30 percent of goods from local, small

18

industries. State governments will have the freedom to decide whether to allow the supermarkets on

their patch and the minimum investment will be $100 million, Commerce Minister Anand Sharma said.

Half of that investment must be in rural areas.

The aviation reform will allow foreign carriers to take a stake of up to 49 percent in local airlines,

providing a potential lifeline to the country's debt-laden airlines.

Cabinet clears insurance, pension FDI bills

The cabinet approved bills on Thursday to attract foreign investment into insurance and pensions

among a package of new measures to restore confidence in the economy, although the reforms will face

a tough fight in parliament.

The steps followed big-ticket policies unveiled last month, including hiking diesel prices and inviting in

foreign supermarkets, aimed at fending off a cash crunch and reviving growth, which has slowed to a

nearly three-year low.

Those reforms helped India's markets rally in recent weeks. The latest moves have added to the positive

sentiment and could boost interest in a forthcoming sale of shares in state-owned companies, but they

are still far from becoming law.

"The main thing is getting parliamentary approval for this. The challenging part is actually starting now,

because there is a lot of opposition to FDI (foreign direct investment) in insurance and pensions," said

Sonal Varma, India economist with Nomura.

The bills would allow up to 49 percent foreign ownership of insurance companies and in the pension

sector, Finance Minister P. Chidambaram told reporters. Currently, foreign investors are barred from

buying into pensions, and the cap for insurers is at 26 percent.

"The insurance regulator has categorically stated that insurance requires huge capital. It will only come

if we can raise the FDI limit," Chidambaram said. Most of India's 24 insurance companies have lost

money in the past decade, hit by restrictions on foreign holding and by regulatory changes.

IMF cuts India growth forecast to 6 per cent for 2013

The International Monetary Fund (IMF) has lowered India’s growth forecast to 6 per cent versus a

previous forecast of 6.6 per cent, a German newspaper reported on Friday. It also lowered its forecasts

19

for global economic growth to 3.3 per cent this year and 3.6 per cent in 2013 from earlier forecasts of

3.4 per cent and 3.9 per cent respectively, the newspaper said.

It expects the euro zone economy to shrink by 0.4 per cent this year and then grow 0.2 per cent in 2013,

business daily Handelsblattsaid in a preview of the fund's latest forecasts, which are due to be released

next week.

Chinese growth for 2013 is seen at 8.2 per cent, versus a previous IMF estimate of 8.4 per cent, and

Brazilian growth at 4 per cent versus 4.7 per cent, the newspaper reported.

"The further cooling of global economic growth this year and next year is accompanied by a significant

increase in downward risks," it quoted the IMF as saying. It added that the global growth outlook

depended on "whether decisive political steps to stabilise confidence are taken in the euro zone and

US".

India's economic growth languishes, worst may be over

India's economic growth languished near its slowest in three years in the quarter that ended in June but

was slightly better than expected, signalling the worst may be over for Asia's third largest economy and

dashing investor hopes of an early rate cut. India's quarterly GDP grew 5.5 percent, driven by a rebound

in construction and financial services, provisional government data showed, just above the 5.3 percent

posted in the three months ended in March and slightly higher than economists had forecast in a

Reuters poll.

"We expect a gradual recovery in growth during the current fiscal year ending in March 2013, but this

recovery is contingent on structural reforms," said Leif Eskesen, chief economist for India and ASEAN at

HSBC in Singapore. "It will also depend on the stabilisation of the global economy."Weak demand in the

West has hit Indian exports, but the heaviest toll on the economy is from government overspending and

a lack of reforms, a point made by both the central bank and ratings agencies Fitch and Standard &

Poor's, who threatened to downgrade India's sovereign ratings to junk.

Many G20 central banks have been moving to support growth, but Indian policy interest rates have

come down just once in more than two years and are among the highest of big economies. Some

investors had been optimistic that a weak growth number would persuade the Reserve Bank of India

(RBI) to cut borrowing costs at its September 17 review, but the slight uptick will bolster the bank's

argument that stubborn inflation is its main concern.

RBI Governor Duvvuri Subbarao this week said inflation remained too high and needed to fall further or

risk more damage to the economy.India's benchmark 10-year bond yield gained 5 basis points to 8.24

20

percent after the GDP data, while one- and five-year overnight index swap rates rose 5 basis points

each, reflecting disappointed hopes for rate cuts.

While the GDP figure is strong by global standards, it is considered almost recessionary in India, which

targets 9 percent expansion to provide jobs for a bulging young population. Persistent economic

sluggishness was reflected in data on Friday that showed infrastructure output grew 1.8 percent in July

from a year earlier, slower than annual growth of 3.9 percent in the previous month.

Net foreign institutional investment in Indian stocks and bonds has quadrupled this year to $16.7 billion,

including nearly $4 billion since the start of July. The BSE Sensex is up more than 12 percent this year,

making it one of the best performing major markets in Asia.

Finance Minister, P. Chidambaram said the decline in fixed investment growth to 0.7 percent in the

quarter, from 14.7 percent a year earlier, was a concern: "It emphasizes once again the need to take

quick decisions to accelerate investments, especially removing all bottlenecks to investments in the

manufacturing sector."

Stung by S&P's warning India may become the first country in the BRICS group of big emerging markets

to lose its investment grade rating; Chidambaram's ministry is also contemplating possible budget cuts

later in the year.

India's manufacturing sector grew an annual 0.2 percent during the quarter, the first of the 2012/13

fiscal year, while farm output rose 2.9 percent. Construction grew a surprisingly strong 10.9 percent

while the financial services sector was up 10.8 percent, possibly a result of a 50 basis point rate cut

made by the central bank in April. Recently revised GDP data shows a much worse economic

performance than originally thought in the aftermath of the global financial crisis.

Union Budget 2012-2013 – Macroeconomic Perspective

The Union Budget for FY13 was presented at a time when the domestic economy is in the midst of a

slowdown with the downturn in the global economic environment further impeding the growth

momentum. Measures for boosting demand, especially on the investment front through progressive

policy action and at the same time laying a credible fiscal consolidation road map were widely

anticipated in this budget. However, the announcements in the Union Budget for FY13 could best be

described as workmanlike in nature. Acknowledging that the government has limited fiscal space to

manoeuvre, the realistically high fiscal deficit target of 5.1% could ensure that going ahead the

economic agents would set their expectations on growth on the right path.

21

The Union Budget FY13, though lacks major big bang announcements, it has made an attempt to

manage the government finances in a much prudent manner. Hike in the excise duties and service tax

was required to garner more revenue. The increase in the tax limits though marginal, would ensure

some savings to the middle income group which constitute the majority of the population, thereby

boosting demand. Further, the intention to implement the Advance Pricing Agreement which would

significantly bring down tax litigation and provide tax certainty to foreign investors is a positive

development. On the expenditure front, government’s decision to stay away from allocating a major

proportion of funds towards the social sector or new announcements is a welcome move as it would

lead to divergence of funds towards other productive areas. The government has also emphasised the

need to accelerate infrastructure development. Allowing irrigation terminal markets, common

infrastructure in agriculture markets, soil testing laboratories and capital investment in fertiliser sector,

Oil and Gas/LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and

telecommunication towers eligible for Viability Gap Funding (VGF) for support to Public Private

Participation (PPP) projects would enhance financing. However, it would be the effective realization of

the scheme which would boost infrastructure development as during the previous budget

announcements lack of implementation had created bottlenecks.

The focus of the government on capital market is a positive given it would accelerate capital generation

and funding requirement for the Indian corporate thereby boosting investment. Besides, allowing

External Commercial Borrowings (ECBs) to part finance Rupee debt of existing power projects, for capital

expenditure on the maintenance and operations of toll systems for roads and highways and also for

working capital requirements of the airline industry is commendable as it would ensure securing of

funds by these sectors which are facing financing crunch. The biggest disappointment in the budget was

that the government did not lay down a strong reform agenda. While it was highly expected that specific

progressive policy action would be taken regarding subsidies, FDI, labour laws or land acquisitions, the

budget failed to deliver on that front. Moreover, the government also did not set out effective timelines

for implementation of the much anticipated Direct Tax Code (DTC) & Goods & Services Tax (GST).

Nonetheless, government’s efforts are expected to continue outside the Budget which is required to

boost the growth momentum.

22

M&A

M&A activity slowed down in 2011 as uncertainty surrounding the European sovereign-debt crisis

continued to vex the global economy. The growth that characterized the first seven months of the year

came to an abrupt halt in August as the crisis heightened, accompanied by a sharp 17 percent drop in

the S&P 500 and a surge in volatility. For the year, companies around the world announced 7,700 deals,

valued at $2.7 trillion—a meagre 3 percent increase from 2010.

The freefall in global M&A was temporarily halted in Q2 2012. Registering US$ 494.9bn in deals, Q2

2012 was up 13.9% on Q1 2012 (US$ 434.6bn), reversing a decline that had seen five previous quarters

of consecutive fall in the global total. The H1 2012 total of US$ 929.4bn, however, was a decline of

21.6% on H1 2011 (US$ 1,185.1bn)

Energy, Mining & Utilities had a dominant market share in H1 2012. Business Services, Construction,

Consumer and Agriculture were the only four sectors globally to see increase in value.

Asia-Pacific Deals

Asia-Pacific M&A for H1 2012 registered US$ 140.1bn in deals, down 15.1% on H1 2011. Asia-Pacific’s

Q2 2012 total deal value of US$ 71.1bn was up 3% on Q1 2012 (US$ 68.3bn). But this did not stop it

from being the region’s second-lowest quarterly total since Q2 2010 (US$ 71bn).

Trends varied across the region but most headed south. Australia, hit by falling commodity prices,

recorded US$ 23.2bn in H1 2012 M&A, a 22.3% fall from H1 2011 (US$ 29.9bn). This was the biggest

year-on-year decline for any country in the region.

23

Top 15 Asia Deals YTD

Bidder Target Seller Bidder

Advisor

Target/Seller

Advisor

Deal

Value

(USD mn)

Sector

Vedanta

Resources Plc

Sterlite Industries

(India) Ltd

Sterlite

Industries

(India) Ltd

JPMorgan

Cazenove Ltd.,

Morgan

Stanley,

Citigroup

Credit Suisse

Group AG

DSP Merrill

Lynch Ltd.

$9,369.6 Mining &

Minerals

DBS Group

Holdings Ltd

PT Bank

Danamon

Indonesia Tbk

$7,338 Banking &

Finance

Alibaba Group

Holding Ltd

Alibaba Group

Holding Ltd (20%

Stake)

Yahoo! Inc $7,100 IT

Sumitomo Mitsui

Financial Group /

Sumitomo Mitsui

Finance & Leasing

Co Ltd / Sumitomo

Corp

RBS Aviation

Capital

Royal Bank of

Scotland

Group Plc

Barclays

Capital, SMBC

Nikko

Securities

Goldman

Sachs & Co

Royal Bank of

Scotland

$6,035.5 Banking &

Finance

DBS Group

Holdings Ltd

Asia Financial

Indonesia Pte Ltd

Fullerton

Financial

Holdings Pte

Ltd

ING Bank,

Morgan

Stanley,

Credit Suisse

Citigroup,

BoA Merrill

Lynch,

UBS

$4,950.9 Banking &

Finance

Petroliam

Nasional Bhd.

Progress Energy

Resources Corp

Progress

Energy

Resources

Corp

BoA Merrill

Lynch

Scotia

Waterous Inc.,

BMO Capital

Markets Ltd

$4,674.8 Oil & Gas

Blackstone Group

LP / Carlyle Group

LLC

Reliance Infratel

Ltd – 95%

Reliance

Communicatio

ns Ltd

- UBS $4,640.4 Communicatio

n

China Tobacco

Corporation ; PICC

Asset

Management Co.

Industrial Bank

Co. Ltd. (16.1%

Stake)

- - $4,181 Banking &

Finance

24

Ltd.; Beijing

Infrastructure

Investment Co.

Ltd.;

Shanghai Zheng

Yang International

Trade Co Ltd

Beijing Shougang

Co Ltd

Hebei Shougang

Qian'an Iron and

Steel Co Ltd

Shougang

Group

Corporation

- - $4,180 Metals

Baosteel Group

Corp

Stainless Steel

Operations

Baoshan Iron

& Steel Co Ltd

- - $4,067.0 Primary Metal

Processing

TonenGeneral

Sekiyu KK

ExxonMobil YK –

99%

Exxon Mobil

Corp

Nomura

Securities

JPMorgan

Chase & Co

$3,935.6 Wholesale &

Distribution

Marubeni

Corporation;

POSCO;

and STX

Corporation Co.,

Ltd

Roy Hill Holdings

Pty Ltd. (30%

Stake)

Hancock

Prospecting

Pty Ltd

Rothschild $3,655 Metals &

Mining

Marubeni Corp Gavilon Holdings

LLC

Gavilon

Holdings LLC

- Morgan

Stanley,

Mitsubishi

UFJ, Morgan

Stanley,

BoA Merrill

Lynch

$3,600.0 Miscellaneous

Services

1Malaysia

Development Bhd

Tanjong Energy

Holdings Sdn Bhd

Tanjong

Capital Sdn

Bhd

Goldman

Sachs & Co

- $2,809.9 Electric, Gas

and Utilities

Pangang Group

Steel Vanadium &

Titanium Co., Ltd.

Iron and Mineral

Processing

Operations

Anshan Iron &

Steel Group

Corp

China

International

Capital Corp

Ltd

$2707.2

Mining &

Mineras

25

Top 5 India Deals in 2012

Top 10 India Deals in 2011

1. Mahindra & Mahindra's 70% acquisition of Ssangyong

Mahindra & Mahindra acquired a 70% stake in Ssangyong. Out of the total cost of acquisition of

$ 463 million (about Rs 2,105 crore), $ 378 million will be in new stocks and $85 million will be in

corporate bonds. The acquisition would help M&M launch South Korean company's flagship SUV

models - Rexton II and Korando C - into the Indian market.

2. Vedanta - Cairn buyout

Billionaire Anil Agarwal-led Vedanta group's $ 8.6 billion acquisition of Cairn India has become

the biggest M&A deal ever in the Indian energy sector. The much hyped deal was finally cleared

by the Home Ministry on December 05, 2011. The Home Ministry, while giving the security no-

objection certificate (NOC), highlighted eight areas of concern, including 64 legal proceedings

against Vedanta and its subsidiaries in various courts.

3. Reliance Industries - BP $7.2 billion deal

The deal includes BP's purchase of 30% stake in Reliance's 23 blocks, including India's largest gas

field KG-D6. Europe's second-largest oil company, BP is hoping to help Reliance Industries find

more oil and gas and boost output at the showpiece KG-D6 fields. Experts say the Reliance-BP

partnership is fundamentally different from the controversial Cairn-Vedanta deal in which a

controlling stake in Cairn India is being sold.

Bidder Target Bidder Advisor Target/Seller

Advisor

Deal Value

(USD mn)

Acquirer

Industry

Target

Industry

Sesa Goa

(Vedanta)

Sterlite

Industries

JPMorgan

Cazenove Ltd.,

Morgan Stanley,

Citigroup

Credit Suisse

Group AG

DSP Merrill

Lynch Ltd.

3,911 Materials Materials

GOI SBI - - 1,575 Public

Sector

Financials

Tech

Mahindra

Mahindra

Satyam

Enam Securities,

Barclays Bank

- 1,018 Hi-Tech Hi-Tech

Piramal

Healthcare

Vodafone - Barclays 619 Healthcare Telecom

Lodha Group Developers - - 514 Real Estate Real Estate

26

4. GVK Power $1.26 billion acquisition of Hancock Coal

GVK Power acquired Australia's Hancock Coal for $1.26 billion, in one of the largest

overseas acquisitions by an Indian infrastructure entity. GVK said the deal will offer the

Hyderabad-based company option for long term coal supply contracts for the purchase of

up to 20 million tonnes every year. This can support around 7,500 megawatts of power

generating capacity.

5. Honda’s exit from Hero Honda

The country's largest two-wheeler maker Hero Honda's Japanese promoter Honda Motor Co

exited the company after selling its 26% stake to a group firm of Honda in Hero Honda for Rs

3,841.83 crore. After Hero's exit from Hero Honda, the company was renamed Hero MotoCorp.

As per the new structure, Hero Investments Pvt Ltd (HIPL), one of the main shareholders in Hero

Honda, has now increased its stake in the Munjals-promoted auto major to 43.33% from 17.33%

as on December 31, 2010.

6. Adani Enterprises’ $2 billion acquisition of Abbot Point coal terminal

The deal will help the Adani group ship out coal from an Australian mine it has acquired last

year. This deal marked the third overseas acquisition in nine months by the group that runs the

country's biggest private port and is India's largest coal importer. According to Adani Group, the

deal was one of the largest port acquisitions in the world and the group has now emerged as the

largest Indian investor in Australia.

7. Sahara India Group’s 42.5% stake in Force India

2011 saw the first ever Formula 1 Grand Prix in India. This also marked Sahara's $100-mn

investment in Force India, a tie-up between two of India's best-known and controversial

tycoons- Vijay Mallya and Subrata Roy. Sports marketing experts said it was a win-win alliance.

8. iGate’s acquisition of Patni computers

This is one of the largest deals in the Indian IT industry in recent years. iGate acquired Patni

Computers for $1.2-billion. iGate now holds roughly 82.5% stake in Patni computers. The

acquisition was funded by $770 million debt, $330 million by issuing convertible preferred stock

to Apax Partners and cash in hand. The company is called 'iGate Patni'.

9. Anil Ambani’s Mudra deal with Omnicom

This is the biggest deal in the history of Indian advertising. The deal for a 41% stake fetched

Mudra's majority shareholder and ADAG boss Anil Ambani around Rs 700 crore. Omnicom has

the option of acquiring another 25% in three years and the entire network in five years,

27

according to the agreement. Anil Ambani will continue to own a 49% stake in his personal

capacity in the agency.

10. Jyothy Laboratories' Rs 617 crore acquisition of Henkel AG

Ujala fabric whitener maker Jyothy Laboratories bought Henkel AG's majority stake in its Indian

subsidiary for Rs 617 crore, including debt and preference shares. The deal includes Henkel's

entire portfolio that includes Henko and Chek detergents, Pril dish cleaners and Fa deodorant,

and rights to the multinational's future launches.

Global Mergers and Acquisitions scenario

Global M&A in H1 2012 falls 21.4% compared to same period last year

US$ 931.4bn of M&A equal to a 21.4% decline on H1 2011

Q2 2012 total of US$ 494.9bn, reverses five consecutive quarterly declines

Third-lowest first-half total since H1 2004

Goldman Sachs tops global advisory league table for H1 2012

Goldman Sachs retains top spot in global financial advisers league table

Morgan Stanley tops Europe table

Citigroup takes second spot in Asia-Pacific

TMT to be most popular “companies for sale” sector globally

Industrials & Chemicals tops Asia-Pacific Heat Chart

Germanic countries in Europe see similar popularity for Industrials & Chemicals

TMT in the US dominates landscape

Asia-Pacific half-year M&A down 15.1% on H1 2011

Second quarter total of US$ 71.1bn, up 3% on Q1 2012

Australia H1 2012 deals record biggest fall, down 19.4% on H1 2011

Asian investment into Europe experiences third consecutive quarterly decline

European M&A in the first half of 2012 down 15.7% on H1 2011

Germanic countries make up nearly a third of total deal value

Region accounts for 38.3% of global M&A by total value in H1 2012

Construction sector sees biggest percentage increase in half-year value

28

US H1 2012 M&A activity lowest half-year total since 2003

Half-year M&A totals US$ 258.7bn, down 40.1% on H1 2011

Energy, Mining & Utilities accounts for 23.1% of total deal value

Financial Services sees big decline while Consumer deals surge

Private equity buyouts in H1 2012 down by over a fifth on same period last year

PE-backed buyouts total US$ 113.8bn for H1 2012, down 22.4% on H1 2011

Asian buyouts slump to lowest quarterly total since Q2 2010

Higher average buyout leverage ratio, lower debt-EBITDA multiples

Private equity exits down 30% on H1 2011

SBOs up 85.2% quarter-on-quarter

European multiples 25.5% higher than in the US

US exit premiums at second-highest level in eight years

Energy, Mining & Utilities increases dominant market share in H1 2012

Business Services, Construction, Consumer and Agriculture only four sectors to see increases in

value

Construction sector in Europe sees major jump

US Industrials & Chemicals sector sees sharp decline in H1 2012

Summary Data for Global Mergers and Acquisitions deals

Summary

Number of Deals 20361

Value US$ 1.54 tn

Average Disclosed Deal Size US$ 140.54 mn

Largest Deal

Target Xstrata PLC

Acquirer Glencore International PL

Deal Size US $ 46.67 bn

Most Acquisitive Company

Acquirer Accel Partners

Number of Deals 54

Value US$ 1.04 bn

Average Disclosed Deal Size US $ 19.19 mn

29

Total Deal Value by Country

Total Deal Value by Industry

30

Global Mergers and Acquisitions League Tables

Adviser

Rank

(Market

Share)

Market

Share (%)

Total Deal

Size

(USD, M)

Deal

Count

Goldman Sachs & Co 1 25.0776 385,791.8 267

Morgan Stanley 2 22.6618 348,626.6 287

JP Morgan 3 19.747 303,785.7 194

Barclays 4 16.332 251,249.6 203

Deutsche Bank AG 5 15.9754 245,764.2 155

Credit Suisse 6 15.5222 238,791.4 148

Citi 7 15.3713 236,470.2 158

Bank of America Merrill Lynch 8 11.9245 183,445.4 133

Nomura Holdings Inc 9 8.2621 127,102.7 110

Rothschild 10 7.5724 116,493.1 156

Lazard Ltd 11 7.4161 114,087.9 146

UBS 12 6.99 107,533.0 123

RBC Capital Markets 13 5.2838 81,285.0 131

BNP Paribas Group 14 4.6358 71,316.3 49

Evercore Partners Inc 15 3.545 54,535.9 51

31

Global Largest Mergers and Acquisitions Deals by deal value

Target Name Acquirer Name Seller Name Industry Group Transaction Type

Total

Value

(mil.)

EBITDA

Multiple

Equity

Value -

Free

Cashflow 1 Xstrata PLC Glencore International

PLC

Mining Additional Stake

Purchase,Cross

Border,Company

Takeover

46,672.0 5.7 46.36

2 Nexen Inc CNOOC Ltd Oil&Gas Cross

Border,Company

Takeover

17,431.7 33.03

3 T-Mobile USA Inc MetroPCS

Communications Inc

Deutsche Telekom

AG

Telecommunicatio

ns

Company

Takeover,Reverse

Merger,Recapitalizati

on

17,412.7 3.24 8.7

4 Grupo Modelo SAB de

CV

Anheuser-Busch InBev

NV

Beverages Tender

Offer,Additional

Stake Purchase,Cross

Border,Company

Takeover

17,231.3 13.43 196.77

5 Cooper Industries PLC Eaton Corp Miscellaneous

Manufactur

Company Takeover 12,826.7 14.15 671.22

6 Pfizer Nutrition Nestle SA Pfizer Inc Food Cross

Border,Company

Takeover

11,850.0

7 Archstone Lehman Brothers

Holdings Inc

Barclays PLC,Bank of

America Corp

Diversified Finan

Serv

Additional Stake

Purchase,Majority

purchase,Private

Equity

11,805.6

8 International Power

PLC/United Kingdom

GDF Suez Electric Additional Stake

Purchase,Cross

Border,Company

Takeover

10,171.0 9.54

9 Fraser and Neave Ltd Thai Beverage PCL Beverages Tender

Offer,Additional

Stake Purchase,Cross

Border,Company

Takeover,Mandatory

Offer

9,191.6 13.91 59.47

10 Dr Ing hcF Porsche AG Volkswagen AG Porsche Automobil

Holding SE

Auto

Manufacturers

Additional Stake

Purchase,Company

Takeover

8,729.9 3.91 10.55

32

Target Name Acquirer Name Seller Name Industry Group Transaction Type

Total

Value

(mil.)

EBITDA

Multiple

Equity

Value -

Free

Cashflow 11 Tokyo Electric Power

Co Inc

Nuclear Damage

Compensation

Facilitation Corp

Investment

Companies

Government

Administration,Privat

e

Placement,Convertibl

e

8,572.9

12 State Grid Energy

Development Co Ltd

Shenhua Group Corp

Ltd

China State Grid

Corp

Coal Company Takeover 8,127.0

13 Best Buy Co Inc Private Investor Additional Stake

Purchase,Company

Takeover

7,594.3 2.9 37.13

14 Viterra Inc Glencore International

PLC

Mining Cross

Border,Company

Takeover

7,498.9 10.65

15 EP Energy Global LLC Apollo Global

Management

LLC,Unnamed

Buyer,Korea National

Oil Corp,Riverstone

Holdings LLC...

El Paso LLC Private

Equity,Company

Takeover,Leveraged

Buyout

7,150.0

16 Alibaba Group Holding

Ltd

Alibaba Group Holding

Ltd

Yahoo! Inc Holding

Companies-Divers

Minority

purchase,Cross

Border

7,100.0

17 Sterlite Industries

India Ltd

Sesa Goa Ltd Mining Additional Stake

Purchase,Majority

purchase,Company

Takeover

6,853.6 7.67

18 TNT Express NV United Parcel Service

Inc

Transportation Cross

Border,Company

Takeover

6,853.3 13.39 84.6

19 Redecard SA Itau Unibanco Holding

SA

Banks Tender

Offer,Additional

Stake

Purchase,Company

Takeover

6,844.9 14.51 622.58

20 Sunoco Inc Energy Transfer

Partners LP

Pipelines Company Takeover 6,786.5 5.66 32.16

33

Details of Top 10 M & A deals

Sr.no Target Buyer Deal Description

1

Xstrata PLC Glencore

International

PLC

The board of Anglo-Swiss mining company Xstrata PLC is

recommending shareholders accept merger terms with

Swiss commodities trader Glencore PLC – a deal that would

create an industry behemoth with revenues of around $175

billion.

Xstrata said in a statement it was supporting the offer of

3.05 Glencore shares for each Xstrata share. The deal values

Xstrata at 31.9 billion pounds ($51.5 billion) on the shares'

closing price Friday. Glencore has a market capitalization of

23.5 billion pounds.

Xstrata is the world's biggest exporter of thermal coal and

also produces copper, nickel and zinc. If the deal is approved

by 75 percent of Xstrata shareholders, the merged company

would be one of the world's largest natural resources firms.

Glencore, one of the world's biggest traders in raw materials

such as coal, cotton and corn, went public with a $10 billion

IPO last year.

2 Nexen Inc CNOOC Ltd Shareholders of Canada's Nexen have approved the takeover

bid by China's state-owned CNOOC to acquire the firm in a

$15.1bn (£9.3bn) deal.

CNOOC had offered to pay $27.50 cash per share for Nexen

in July, a 60% premium on its share price at the time.

However, the deal still needs to be approved by the

Canadian government which has launched a review to assess

its benefit to Canada. The Canadian government has the

right to block any foreign investments over C$330m if it

believes they are not in Canada's best interests, could yet

veto the deal.

If approved, the deal will be China's largest foreign business

34

Sr.no Target Buyer Deal Description

takeover.

CNOOC is China's biggest offshore oil producer, has made

commitments to ensure the authorities that the deal will

bring benefit to the country. Nexen Inc. is an upstream oil

and gas company responsibly developing energy resources in

the UK North Sea, offshore West Africa, the Gulf of Mexico

and Western Canada. Nexen has three principal businesses:

conventional oil and gas, oil sands and shale gas.

3 T-Mobile USA

Inc

MetroPCS

Communications

Inc

4 Grupo

Modelo SAB

de CV

Anheuser-Busch

InBev NV

Anheuser-Busch InBev NV is taking control of Corona Extra

beer maker Grupo Modelo GPMCY -0.24% SAB de CV,

according to people familiar with the matter, in a deal that

could be valued at more than $12 billion and would end a

contentious history between the two companies.

Budweiser parent Anheuser-Busch and Corona maker Grupo

Modelo confirmed Monday they are in talks to combine, a

deal which would reshape the global beer industry. It would

also consolidate the Belgian brewer's ownership of Corona

Extra, one of the world's top beer brands.

Modelo traces its roots to 1925. Its brands are imported into

the U.S. and marketed through a joint venture the company

has with U.S. wine and spirits maker Constellation Brands

Inc. Modelo had net income of 18.4 billion pesos ($1.33

billion) in 2011, up 18% from the prior year, on sales of 91.2

billion pesos.

Should a deal be reached, it would hand AB InBev control of

a company whose brands include Corona Extra, the best-

selling imported beer in the U.S., and Modelo Especial, the

fast-growing No. 3 import. The deal could also jump-start AB

InBev's effort to tap into the fast-growing Latino market in

the U.S. Modelo brands also include Corona Light, Negra

35

Sr.no Target Buyer Deal Description

Modelo, Pacífico and Victoria.

5 Cooper

Industries PLC

Eaton Corp The power management provider Eaton Corporation said on

Monday that it had agreed to acquire Cooper Industries for

$11.8 billion in a deal that would allow the companies to

form a global electricity business.

Under the terms of the deal, Cooper shareholders will

receive $39.15 in cash and a portion of shares in the newly

formed company for each of their Cooper shares, for a

premium of roughly 29 percent from Cooper’s closing price.

The deal, expected to close in the second half of the year,

will form the basis for a new company located in Ireland.

Eaton stands to benefit from Cooper’s range of electrical

products and its global reach.

A compelling combination of Eaton’s power distribution and

power quality equipment and systems with Cooper’s

diversified component brands, global reach and

international distribution creates a game changer to serve

the electrical industry.

Eaton has secured a $6.75 billion financing commitment for

the deal from Morgan Stanley and Citigroup.

The two firms advised Eaton on the acquisition, while

Goldman Sachs advised Cooper.

6 Pfizer

Nutrition

Nestle SA The Swiss food giant Nestlé will buy Pfizer’s infant nutrition

business for $11.9 billion, the largest ever acquisition by the

European company as it expands its global presence in the

baby food market.

Nestlé is paying 19.8 times the Pfizer unit’s estimated pretax

profit for 2012. The Pfizer unit reported revenue of

approximately $2.1 billion, a 15 percent increase compared

with that of 2010. Nestlé said it expected the unit to

generate revenue of $2.4 billion this year. The Pfizer unit

was the subject of fierce bidding by a number of companies,

36

Sr.no Target Buyer Deal Description

chiefly Nestlé and its French rival, Danone.

Analysts said Nestlé was willing to pay a high premium for

the business to gain greater access to emerging markets in

Asia and the Middle East. Currently, the Pfizer unit generates

85 percent of its revenue from developing economies. The

deal will help Nestlé tap into the growth of the emerging

markets, and allow Pfizer, the world’s largest drug company,

to offload the business unit to focus on developing new

prescription drugs. The newly combined business will hold a

10 percent market share in China’s baby food market, as

well as a 38 percent share in the Middle East and African

region

7 Archstone Lehman

Brothers

Holdings Inc

Lehman Brothers Holdings has agreed to buy the stake it

does not currently own in Archstone, a sprawling apartment

company, for about $1.58 billion.Lehman will buy the

remaining 26.5 percent stake from Bank of America and

Barclays. Lehman bought Archstone with BofA and Barclays

in a USD 22 billion leveraged buyout in 2007, a year before it

declared bankruptcy.

As part of the deal, Lehman will provide some compensation

to its main rival for the banks’ stake, Samuel Zell’s Equity

Residential. Earlier this year, Lehman agreed to buy half of

Bank of America and Barclays’ stake for $1.3 billion, in an

effort to prevent them from selling the stake to Equity

Residential.

8 International

Power

PLC/United

Kingdom

GDF Suez French utility firm GDF Suez has agreed a deal to take full

ownership of UK-based energy company International Power

(IP).

GDF has agreed to buy the 30% of IP it does not already own

for 418p a share, valuing the company at about £22.8bn.

In August 2010 the company announced a tie-up with GDF

Suez via a reverse takeover whereby GDF Suez transferred

37

Sr.no Target Buyer Deal Description

its Energy International Business Areas (outside Europe) and

certain assets in the UK and Turkey to International Power in

exchange for 70% of the stock of the combined entity. The

remaining 30% remained in the ownership of the existing

International Power shareholders. The combination was

completed on 3 February 2011 following approval by

shareholders.

IP owns 100 power stations, 11 of which are in the UK,

including the coal-fired station at Rugeley in Staffordshire.It

also owns the oil-powered Indian Queens facility in Cornwall,

the gas-fired station at Satend, near Hull, and two UK wind

farms.

9 Fraser and

Neave Ltd

Thai Beverage

PCL

Thai Beverage Pcl (THBEV) boosted its holding in Fraser &

Neave Ltd. to 29 percent, putting it just below the level at

which acquirers of company stakes are expected to begin

takeover offers.

Thai Bev, controlled by Thai billionaire Charoen

Sirivadhanabhakdi, acquired an additional 2.6 percent stake

for about S$316.1 million ($252.4 million), the Bangkok-

based company said yesterday in an e-mailed statement.

Singapore’s takeover guidelines require a buyer of a 30

percent stake to bid for the rest of the company in a so-

called open offer.

The purchase will give Charoen’s company a greater voice

when F&N shareholders vote on Heineken NV (HEIA)’s $4.5

billion offer for F&N’s 40 percent stake in Asia Pacific

Breweries Ltd. ThaiBev may face hurdles raising cash to buy

the whole of F&N, which has a market value of S$11.8

billion.

10 DrIng hcF

Porsche AG

Volkswagen A Volkswagen AG announced a deal with Porsche resulting in

VW's full ownership of Porsche on August 1, 2012. The deal

was classified as a restructuring rather than a takeover due

to the transfer of a single share as part of the deal.

Volkswagen AG paid Porsche shareholders $5.61 billion for

the remaining 50.1% it did not own.

38

Markets

Markets at a

Glance

SENSEX Open High Low Close

Shares

Traded(Cr)

Turnover

(Rs Cr) Change

Jun-12 16,217.48 17,448.48 15,748.98 17,429.98 21.99 11,452.40 7.5%

Jul-12 17,438.68 17,631.19 16,598.48 17,236.18 21.03 11,575.42 (1.1%)

Aug-12 17,244.44 17,972.54 17,026.97 17,429.56 21.29 10,469.61 1.1%

Sep-12 17,465.60 18,869.94 17,250.80 18,762.74 21.54 10,473.78 7.6%

NIFTY Open High Low Close Shares

Traded(Cr)

Turnover

(Rs Cr) Change

Jun-12 4,910.85 5,286.25 4,770.35 5,278.90 303.8321 1,14,693.19 7.2%

Jul-12 5,283.85 5,348.55 5,032.40 5,229.00 267.2518 1,12,001.79 (0.9%)

Aug-12 5,220.70 5,448.60 5,164.65 5,258.50 275.1927 1,08,496.41 0.6%

Sep-12 5,276.50 5,735.15 5,215.70 5,703.30 334.7978 1,29,919.15 8.5%

Particulars Jun-12 Change Jul-12 Change Aug-12 Change Sep-12

Chang

e

Best Performing Index Cap Goods 13.7% H/Care 3.70% IT 7.40% Realty 22%

Worst Performing Index C. Durables 0.1% IT (7.30%) Realty (7.70%) H/Care 0.2%

Net FII Pur./(Sales) Rs. Cr 1031 157.7% 10616 929.7% 9274 (12.6%) 19978 115.4%

Net MF Pur./(Sales) Rs. Cr 473 218.8% (1989) (520.5%) (1600) 19.6% (3199)

(99.9%

)

USD/INR Ex. Rate 56.05 (0.7%) 55.16 (1.6%) 55.67 0.50% 52.5 (5.7%)

Gold Price $/Ounce 1604.1 2.7% 1610.5 0.4% 1687.6 4.79% 1775.6 5.1%

39

June 2012

Indian equity benchmarks closed at a two-month high on the last trading day of the month as global

markets rallied quite sharply after European leaders agreed to take emergency action to bring down

Italy's and Spain's spiralling borrowing costs at European Summit. Markets made their biggest monthly

gains since January 2012, with BSE Sensex and Nifty ending the month higher by 7.5% and 7.2%

respectively.

Capital Goods index was the best performer of the month, growing 13.7%. The Prime Minister’s

announcement of boost in infrastructure spend helped CG stocks rally. There was also expectation that

the power ministry will shortly move a note to the Union Cabinet, proposing a levy of 5% on imported

power equipment in a bid to protect domestic manufacturers from Chinese and Korean competitors.

Interest rate sensitive banking stocks rose in the first half of the month on hopes that the RBI would cut

interest rates at mid-quarter monetary policy review on June 18, 2012 to prop up slowing economy.

However, the RBI kept the rates unchanged. But BSE Bankex still ended the month on a positive note as

global sentiments improved on the back of positive outcome from the Eurozone.

Shares of automobiles companies gained ground as petrol price was cut by Rs 2.46 per litre on the last

trading day, the second reduction this month. Among the industry heavyweights, Hero

Motocorp, M&M and Maruti gained 16.6%, 8.5% and 5.7% respectively.

Fitch Ratings and S&P lowered India’s sovereign credit outlook to negative from stable, which cited the

heightened risk of deterioration in growth potential and limited progress on paring the nation’s budget

deficit. The Indian economy grew at its weakest pace in nearly nine years in Q4FY12 (5.3%), suggesting

the impact of high inflation and interest rates as well as added supply constraints and execution

slowdown due to the government's policy impasse. The Rupee crossed the 57 mark on a closing basis for

the first time during the month, falling 0.7% in the month.

In the equity space, the FIIs were reported as net buyers of Rs.1,031 cr in June 2012. Average daily

volumes on BSE during the month of June 2012 fell by 12.6% M-o-M while NSE daily average volumes

ended lower by 2.3% M-o-M.

Gold prices bounced on the last day of the month averting the longest monthly losing streak since 1997,

rising 2.7% in the month, solely because of the 3.5% jump on the last day of the month. Deepening

global economic slowdown from Europe to China appeared to be pushing investors to safer havens like

the dollar. June was gold’s first monthly gain in five months. Oil (WTI) traded near a nine-month low

below $80 a barrel during the month amid signs of a global

economic slowdown that may curb fuel demand.

40

July 2012

After a good performance in June 2012, the Indian markets ended the month of July on a negative note.

The markets started off the month on a positive note as foreign funds remained buyers of Indian stocks.

Further, expectations of measures from the government for revival of the slowing economy aided gains

on the domestic bourses. However, from the middle of the second week of July, the rally fizzled out &

the markets witnessed correction as investors reduced bets on future rate cuts from the RBI after

hawkish comments from RBI governor D Subbarao on inflation. Further, the debt problems in Spain and

Greece also spoiled the sentiments on domestic bourses. However, the markets managed to bounce

back in the last three trading sessions after European leaders signalled that they are prepared to take

stronger action to curb ongoing euro-zone debt crisis. The BSE Sensex & Nifty ended the month with

losses of 1.1% & 0.9% respectively.

The IT sector was a top loser, even as most brokerages cut ratings of TCS, Infosys and Wipro – to

'underperform' during the month, given the bearish outlook for the IT services sector of India. Investors

sentiment was also hurt by IT major Infosys revising downwards both earnings & revenue growth

guidance for FY13 in dollar terms after reporting disappointing Q1 June 2012 results.

Industrial production growth rate slowed to 2.4% in May, 2012 due to contraction in capital goods and

mining output, coupled with poor show by manufacturing sector. Growth in factory output, as measured

by the IIP, was 6.2% in May 2011. However, Food inflation in the consumer price index accelerated to

10.71% in June from 10.66% in May.

Locally, the RBI, on July 31, kept the repo / reverse repo rate & CRR unchanged, but reduced the SLR

rate by 1% from 24% to 23%. The cut in SLR, which is essentially the proportion of deposits that banks

invest in government bonds, will enable banks to shift money from low-yielding bonds to retail loans,

resulting in some loans getting cheaper.

Healthcare index was the top performer in July as the June quarter results reported by most of the

companies like Lupin, IPCA & Cipla were better than expectations. The share prices reported robust

gains of 11.5%, 11.4% & 7% respectively during the month. Cadila Healthcare was a top performer with

14% gains.

FMCG index also ended with decent gains, despite weak market conditions, mainly due to better than

expected results (June quarter) declared by companies like United Spirits, Tata Global Beverages, Dabur

&HUL. United Spirit was a top performer, up 18% during the month.

Gold fell toward the end of the month as investors took profits, as the market considered the prospect

of additional monetary stimulus from U.S. and European central-bank meetings, overall ending with the

41

month 0.4% higher at $1610.5. Crude fell on the last day of the month to a more than two-week low as

doubts rose about the prospects for more stimulus from central banks in the U.S. and Europe.

Foreign investors bought a net Rs. 10621 cr in July, their biggest purchases since February. Global funds

however bought just 40250 cr rupees ($7.3 billion) of 59900 cr rupees of debt quota offered at an

auction, which with demand from oil companies kept a check on any sharp gains and on sustained

capital inflows amid exporters selling the US currency. The USD/INR fell 1.6% in the month.

August 2012

Indian equity benchmark indices ended the month of August 2012 in the positive with Sensex gaining

1.1% and the Nifty ended higher by 0.6% on hopes of quick implementation of reforms by the Indian

Government. The rally was also supported by speculation that US would go for QE3 (Quantitative Easing)

and on hopes of positive outcome from the ECB meeting. Average daily volumes on BSE during the

month of June 2012 fell by 4% M-o-M while NSE daily average volumes ended higher by 1.2% M-o-M.

Reserve Bank of India governor D. Subbarao punctured hopes of a rate cut, as high inflation and

wrecked government finances leave little room for either the central bank or the government to throw

policy lifeline. The governor, who has resisted calls for lowering of borrowing costs, said the challenges

for the Indian economy now are far worse than what they were post-Lehman bankruptcy when RBI

could cut interest rates rapidly to boost demand.

IT index was the best performer of the month. Among the heavyweights in the sector, Financial

Technologies, Oracle Financial Services, Tech Mahindra and TCS rose by 16.9%, 15.5%, 12.1% and 8.6%

respectively. IT stocks rose after New Jersey-based Cognizant Technology Solutions Corp stood by its

full-year revenue forecast at the time of announcement its second quarter results and also after better

than expected US economic data.

The Healthcare index ended the month on a positive note gaining 6.2%. Wockhardt and Strides Arcolab

gained the most 25.4% and 16.5% respectively. Wockhardt's first quarter consolidated net profit surged

95% year-on-year to Rs.378 cr, helped by strong growth in the US market. Cipla rose 11.7% on reports

that the company is partnering South Africa's Aspen Pharmacare to cater to the Australian market.

Consumer stocks continue to outperform with the BSE FMCG index up 5% in August versus the Sensex’s

gain of 2%.FMCG stocks rose as pick-up in monsoon rains last week of the month will lead to a recovery

in yields in summer-sown crops including rice and oilseeds.

42

The Maharashtra government's move to impose a 5% value-added tax retrospectively on flats triggered

a fall in realty stocks, by 7.7% in August 2012, which were already hit by low off-take because of high

prices, rising debt and interest rates.

FIIs were reported as net buyers of Rs.9,274 cr in August 2012. The Indian Rupee depreciated by 0.5%

last month against the dollar. The rupee fell after US policy-makers refrained from announcing more

steps to spur growth, damping demand for riskier assets. Additionally, dollar demand from oil

companies to meet month-end import commitments far outweighed foreign fundinflows seen into

domestic stock markets. The fall in rupee was seen after a rise in July core inflation tempered

expectations for an interest rate cut, while a widening trade deficit highlighted the woes facing the local

currency and also on concerns that the nation’s current-account deficit will widen to a record as

Europe’s debt crisis hurts exports.

Gold posted a 4.79% gain in August, its third straight monthly rise and its biggest since January, almost

ending at $1700. Sentiment in the gold market also received a boost after a report showed the U.S.

consumer confidence deteriorated in August to the lowest in nine months as Americans were more

pessimistic about labour market prospects. Crude oil prices rose 9.55% in August 2012. Crude rallied on

dollar weakness and on optimism about the U.S. economy and as investors turned skeptical the U.S.

government could be readying the release of some of its oil reserves.

September 2012

The bulls continued to dominate as the Indian Markets registered positive returns for the second

straight month in September. The BSE Sensex & Nifty ended the month with robust gains of 7.6% &

8.5%, driven by strong FII inflows on the back of bold economic reform initiatives taken by the

government like opening up FDI in retail and aviation sectors, capping up of cooking gas subsidy and a

hike in diesel prices. The market gained in all the four weeks during the month of September. Investors’

risk appetite strengthened after the positive announcements in Europe to solve the debt crisis and after

US Federal Reserve announced its QE3 program.

The markets ended higher in the first week ended September 08. The rally was in tandem with global

stock markets as investors risk appetite strengthened after the European Central Bank, during the week,

unveiled steps to contain the region's debt crisis. The market gained in all five trading sessions in the

week ending September 14. BSE Sensex & Nifty ended higher by 4% & 4.1% respectively in the week.

The Government took the most difficult step of raising diesel prices by Rs 5 a litre (excluding VAT) and

capped the number of subsidized LPG cylinder a household can get at six per year. Further, Advance tax

payments by 17 top firms based in Mumbai rose by 20% for the three months ending September,

though corporate profits are moderating and industrial growth is faltering. The positive events during

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the week more than offset the negative news flows like moderation in the IIP growth, which stood at

0.1% in July 2012, acceleration in Inflation (WPI stood at 7.55 in August vs 6.87% in July), decline in the

merchandise exports for the fourth straight month in August, and a cut in India’s growth forecast by

HSBC.

The reform implementation led the continued rally in the third week ended September 21 with the BSE

Sensex & Nifty reporting decent gains of 1.6% & 2% respectively. On September 14, Friday evening,

Government of India cleared 51% FDI for multi-brand retail. The move allows global firms such as Wal-

Mart Stores to set up shop with a local partner and sell directly to consumers for the first time, which

supporters say could transform India's $450 billion retail market and tame inflation. Further, on

Saturday, Sept 15, a full Planning Commission chaired by Prime Minister approved the 12th Five-Year

Plan document that seeks to raise the average annual economic growth during 2012-17 period ending

March 2017 to 8.2% from 7.9% achieved in the 11th Plan.

Further, during the start of the week RBI maintained status quo on short term lending rates in its

monetary policy review. However, it cut the CRR by 25 bps, thus releasing Rs. 17,000 cr into the banking

system. Moreover, Federation of Indian Export Organisations (FIEO) said during the week that Trade

deficit in India is likely to contract by nearly a fifth for the first time in over two years on the back of

falling imports of gold into the country.

Average daily volumes on BSE during the month of Sept 2012 rose 11.8% M-o-M (NSE daily average

volumes were higher by 18.4% - M-o-M). The average daily derivatives volumes on NSE gained 11.9% to

Rs. 1,29,597 cr in Sept (In Aug: Rs. 1,15,818 cr). Mutual funds were net sellers for Rs.3199 cr during the

month of Sept 2012 after being net sellers of Rs. 1600 cr in Aug 2012. Strong FII buying was witnessed

during the month of Sept 2012. FIIs were reported as net buyers to the tune of Rs. 19978 cr in cash

markets after being net buyers of Rs. 9,274 cr in Aug 2012. The FIIs were net buyers in 16 out of 19

trading sessions in the month.

Realty, Capital Goods and Banks were the top three performers, which reported strong double-digit gain

of 22.2%, 16% and 14.1% respectively during the month. Realty stocks rose even though the RBI didn’t

cut the repo rate. This was on the thinking that the government's move to allow foreign direct

investment in multi-brand retail chains would boost demand for commercial property. HDIL rose as

Citigroup Global Markets (Mauritius) acquired more than 42 lakh shares in realty player for over Rs 33

crore through open market transaction during the month. The Capital Goods index outperformed due to

strong performance by index heavyweights, L&T and BHEL, which reported robust gains of 19% & 15%

respectively during the month.

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However, IT, FMCG & Healthcare underperformed, reporting positive, but marginal gains of 3.2%, 2.8%

& 0.4% respectively. Significant outperformance in the earlier months and rupee appreciation of nearly

5% in September post the Fed announcement of QE3 restricted these index gains.

Gold prices surged in the month on the back of poor economic data from most countries. The latest

quantitative easing announcement by the Fed made investors look towards gold. Gold ended the month

5.1% higher at $1775.6/ounce. Crude prices were lower in the month on the back of a global slowdown

indicated by sub-par economic news from several countries. For the month, crude and brent fell 4.4%

and 1.9% respectively after U.S. stockpiles climbed the most since March, Chinese manufacturing shrank

and Japanese exports fell, signalling fuel demand may be slowing among the world’s biggest crude users.

The USD fell against most of its global counterparts in September after QE3 announcements by the US

Fed. Additionally, a tax on interest earned by overseas investors on foreign-currency bonds issued by

Indian companies, and on interest payments for overseas loans, was reduced to 5% from 20%.

Reduction in withholding tax will lower costs for companies, especially infrastructure borrowers, by up

to 70 bps. The USD/INR depreciated 5.7% in the month and 6.3% in the quarter.