Deepening euro zone crisis as Greece inched closer to financial chaos and forced a shutdown of its banking system fuelled nervousness across global markets for a second day on Tuesday, with Asian shares holding near five-month lows after Chinese stocks took another leg down while safe-haven assets received a boost.
Amid the uncertainty, the BSE Sensex had reacted sharply and experienced a major crackdown on Monday. Having tanked over 600 points in intra-day trade, the 30-share index closed 167 points down at 27,645.15. It was trading with modest gains of 33 points at 27,678.47 in noon trade on Tuesday.
Nilesh Shah, managing director, Kotak Mutual Fund, said: "From India point of view, our markets will witness little lower volatility than peers as we are least impacted from the unfolding events in Greece and EU."
THE STORY SO FAR
Greece is in the process of repaying the massive debt that it has taken on and by the end of the day needs to pay 1.6 billion euros to the International Monetary Fund (IMF). The country owes about 240 billion euros to the European Commission, the European Central Bank and IMF, together referred to as the troika.
The trouble is that the country is practically bankrupt and needs funds. But the IMF won't give Greece more money unless the arrears are taken care of. If it doesn't pay, it may take a while for IMF to declare Greece in default. Many say Greece's decision to close the banks is a step closer to it leaving the euro zone.
Greek Prime Minister Alexis Tsipras has called a referendum on July 5, where the country will be asked to vote if they support a bailout deal that creditors have proposed involving budget cutbacks and tax increases in exchange for the remaining loans in the country's rescue program. The prime minister is urging people to vote "no".
Market experts believe India has nothing to worry this time as it is well positioned compared to earlier, with foreign exchange reserves of $355 billion, a relatively stable currency and improved fundamentals.
"At this point of time, Greece is not a major worry but it can lead to volatility and slowdown in exports. Bottom line for stability in Indian markets is focus on key reforms land Bill & GST and others," said Rohit Gadia, chief executive officer, and founder, CapitalVia Global Research.
"Markets are expected to remain volatile on Greece woes. Investors will wait with bated breath as to what will be the outcome of the Greek referendum later this week. Nonetheless, in the mean time, Nifty will remain extremely jittery in the 8,000-8,400 levels. A clearer trend is likely to emerge only next week," said Hitesh Agrawal, head research, Reliance Securities.
ADVICE TO INVESTORS
A "no" vote in the referendum could mean euro exit is closer for Greece, as the country would have no outside financial aid. But this decision will depend on the final agreement between Greece and Euro, post the referendum.
In case of international market crash, Indian investors should not panic as this is just knee jerk reaction that Nifty and other benchmark index may give. "Investors should hold the existing positions as it is and can initiate fresh buying on dips," said Gadia.
"Certain stocks in IT, pharmaceuticals and auto ancillaries having significant exposure to euro zone will underperform the market. Since Greece issue is well known for some time, it is unlikely to cause as much correction as the 2008 Global Crisis," said Shah of Kotak Mutual Fund.