Greek imbroglio: drastic effect on domestic markets unlikely, say analysts

A breakdown of debt repayment talks between Greece and its creditors in the European Union over the weekend and uncertainty over the country’s future gave stock markets all over the world a nervous and shaky start.

Nilesh Shah, MD, Kotak Mutual Fund, said, “The whole of last week, global markets had expected Greece and the EU to arrive at a mutually acceptable solution. The weekend announcement of a referendum has created uncertainty and the street is worried about the contagion effect on other countries, such as Portugal, Spain and Italy.”

“Compulsions and the common interest of both Greece and EU will ensure that there will be many swings in the saga keeping havens such as German and Swiss bonds in demand, the euro under pressure and the global equity markets volatile,” Shah added. On Monday, global indices fell in response to another Greek drama. The country has been forced to shut its banks for a week and limit cash withdrawals. Prime Minister Alexis Tsipras said the country will hold a referendum on a bailout plan proposed last week by its creditors.

Even as Asian stocks were rattled observers in India said the spillover effects would be minimal. Hitesh Agrawal, Head — Research, Reliance Securities, said, “Markets are expected to remain volatile until some breakthrough is arrived at on the Greece bailout front. Till the outcome of the Greek referendum is known later this week, the Nifty will remain jittery in the 8,000-8,400 levels. A clearer trend is likely to emerge only next week.” Both Agrawal and Jayant Manglik, President, Retail Distribution, Religare Securities, have advised investors to focus on the Indian domestic recovery and let Greece be.

With over $355 billion foreign exchange reserves and the country promising to grow at the fastest rate in the world, India can withstand any pressure from Greek crisis, industry body Assocham’s Secretary General DS Rawat said. “However, what is worrying is that the overall situation with regard to India’s merchandise exports does not look promising this year and the troubles in Europe could deteriorate prospects,” he added.

Shah of Kotak Mutual Fund also cautioned investors saying that sectors with exposure to Europe, such as IT, pharma and auto ancillaries, are likely to underperform the market. However, since the Greece repayment crisis has gone on for a while, its risks are already factored in the market. “It is unlikely to cause as much correction as the 2008 global meltdown did,” he added.

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