Indian Finance Minister Pranab Mukherjee has said the anti-avoidance measure will enable the government “not only to bring back black money stashed outside the country but also to take steps to prevent the generation of black money
Bloomberg/Mumbai

Indian stocks dropped yesterday amid concern a new rule aimed at preventing tax avoidance will target foreign institutional investors holding local equities, and as the rupee fell to a two-month low.
Sterlite Industries (India) Ltd, the nation’s biggest copper and zinc producer, fell 2%. ICICI Bank Ltd, the country’s second-biggest lender, lost 2.1%.
The BSE India Sensitive Index, or Sensex, retreated 0.8% to 17,121.62 at the 3.30pm close in Mumbai.
The government’s proposal to introduce General Anti-Avoidance Rules (GAAR) will enable the taxing of companies it believes are structuring deals to escape contributions.
Overseas funds pulled out a net $18.4mn from Indian stocks on March 26, the first net sales in 12 days, the Securities & Exchange Board of India said on its website.
Finance Minister Pranab Mukherjee told Parliament on Tuesday that the anti-avoidance measure will enable the government “not only to bring back black money stashed outside the country but also to take steps to prevent the generation of black money.”
“If I were a foreign institutional investor, then I would probably play it safe,” Prasun Gajri, who manages $5.3bn as chief investment officer at HDFC Standard Life Insurance Co, said in an interview with Bloomberg-UTV yesterday. “That could cause a little bit of volatility, but I am hoping that better clarity emerges on this scenario as early as possible.”
The Sensex has jumped 11% this year, poised for the first quarterly gain since the three months ended December 2010, as overseas investors bought a record net $9.1bn of local shares, even as corporate-profit growth slows, interest rates remain at a three-year high, oil prices jump and the government struggles to tackle a widening fiscal gap.
The rupee fell yesterday, approaching a two-month low, as US consumer confidence near a one-year high bolstered demand for dollars amid a retreat in local equities. The rupee declined 0.1% to 50.7850 per dollar in Mumbai, according to data compiled by Bloomberg. The currency fell 3.5% this month, paring its quarterly advance to 4.5%. Earlier, it touched 51.0250 a dollar, approaching 51.495 reached on March 26, the weakest level since Jan. 16.
The currency headed for its first monthly decline this year as the BSE India Sensitive Index of shares fell 0.8%. Foreign investors cut holdings of Indian stocks by $18.4mn on March 26, exchange data show.