The Greek crisis is unlikely to impact India and it’s financial system due to the limited commercial bilateral engagement and the country’s own strong fundamentals, policy makers and other stakeholders maintained on Monday.
Hours after Greece cast a “No” vote to a referendum on whether or not to except the bailout package proposed by its lead lending institutions with conditionality, analysts said even the limited impact had already been factored-in by Indian financial markets.
This, perhaps, explains why key Indian equity indices that had begun on a negative terrain at opening bell on Monday, rose consistently through the day to end on a positive note, up by over 40 basis points over the previous close.
“We are well protected in at least three ways. Our macro-economic situation is much more stable. We have reserves. We are an economy which is still a very attractive investment destination. So I think we are relatively well insulated,” Arvind Subramanian, chief economic advisor to the government said.
Finance secretary Rajiv Mehrishi warned that if yields on euro bonds go up, then it might impact inflows and outflows from India.
“We will have to see how the euro moves now. We are closely monitoring the Greek situation. There could be some reaction on the Fed rate hike,” Mehrishi said.
Devendra Nevgi, chief executive of ZyFin Advisors, elaborated that the crisis may actually bring a boon to India by delaying the US rate hike.
“The major factor is the expectation that the crisis and the lower job creation in the US will help in delaying rate hike. This will be a major gain for India,” Nevgi said.
“Indian currency, equity and bond markets have shown very good resilience towards the whole crisis.”
It is expected that with higher interest rates in the US, the FPIs (Foreign Portfolio Investors) will led away from the emerging markets such as India.
Other economy observers feel that the impact of the Greek crisis might not be that significant given the fact that Greece accounts for just 1.5 percent of eurozone’s economy.
“Strong growth in Spanish economy, the signs of recovery witnessed in other eurozone countries as well as the massive QE announced by the ECB would prevent any form of contagion spreading to other European economies,” Dinesh Thakkar, chairman and managing director, Angel Broking told the media.
“The bond yields are expected to remain modest. The Indian markets also have factored in the Greece default.”
Anand James, co-head, technical research desk, Geojit BNP Paribas, predicted the volatility can be expected in the stocks of Greece-exposure specific companies and sectors in the coming days.
“Some information technology (IT) company stocks or the IT index might be impacted slightly. However, there is no major concern from the sector specific side,” James said.
According to Dipen Shah, head of private client group research with Kotak Securities, the Indian equities markets are still hopeful that a solution would be found to keep Greece in the Eurozone.
“The complete clarity on the issue is still not out yet. The markets are hopeful that a final solution would be found to resolve the crisis,” Shah elaborated to the media.
“The Indian economy is not linked to Greece in any major way. While there can be an impact on currency due to potential outflows, the strong forex reserves should help in reducing the impact to a great extent,” Shah said.
Rupee has shown exceptional resilience to the Greece crisis and not shown any major signs of volatility.
“Forex reserves has given cushion to the rupee. It has been very resilient during this crisis. The Reserve Bank of India (RBI) has been very active to see there is no major volatility in rupee value,” said Hemal Doshi, chief currency strategist, Geofin Comtrade.
The RBI has been building up its foreign reserves to counter any future financial shocks and slide in rupee value like the one which was witnessed in 2008 and June 2013.
India’s foreign exchange reserves stood at $355.22 billion for the week ended June 26.
The RBI had said earlier in its financial stability report (FSR) for June 2015 that the country’s strong macroeconomic fundamentals in terms of growth, inflation, current account and fiscal deficits provides a reasonable degree of resilience to Indian financial system.
The sensitive index (Sensex) of the Bombay Stock Exchange (BSE) gained more than 115 points or 0.40 percent in the day’s trade.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) made marginal gains on Monday, closing 37 points or 0.44 percent up at 8,522.15 points.