For the whole of last week, global markets were expecting Greece and EU to arrive at a mutually acceptable solution. Weekend announcement of Referendum has created uncertainty. Street is more worried about the contagion effect on other countries like Portugal, Spain and Italy.
Compulsions and common interest of Greece and EU will ensure that there will be many swings in the saga keeping safe havens like German and Swiss Bonds in demand, Euro under pressure and global equity markets volatile.
From India’s point of view, our markets will witness lesser lower volatility than peers as we are least impacted from the unfolding events in Greece and EU. Certain stocks in IT, Pharma and Auto Anciliaries having significant exposure to Euro 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.
Fixed Income market will keenly watch how the FII’s are reacting. Indian yields are trading at elevated level despite 75 bps rate cut by RBI since beginning of CY 15. Linking FII debt limit to current level of Rupee and RBI interventions can support yields against further adverse developments. Rupee has shown gradual weakening bias in recent times. The Street seems to be comfortable with current account position and RBI’s management of rupee volatility. Equity markets, while correcting in line with peers on Monday, will be more impacted by how monsoon behaves in July, how upcoming Parliament session is able to legislate bills like GST and Land Acquisition and how June 15 quarterly results pan out.
While unfolding events in Greece will keep debt, equity and currency market volatile, they are going to provide good opportunities for building duration in fixed income market and Domestic Cyclicals portfolio in equity market.
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