Greek drama plays out

As the crisis unfolds with multiple ramifications, it is better to sit back, be patient and watch from the sidelines before re-entering the markets

The monsoon and the markets had a great run last week until the China factor put a brake on them. The Chinese markets have corrected sharply on concerns about growth and the perennial issue about default by Greece continues to haunt global markets.

A statue of the ancient Greek philosopher Socrates stands in front of a Greek flag in Athens. Pics/AFP
A statue of the ancient Greek philosopher Socrates stands in front of a Greek flag in Athens. Pics/AFP

Sensex logged gains of 495.67 points or 1.81 per cent to close at 27,811.84 points while Nifty gained 156.15 points or 1.90 per cent. Broader indices like BSE100, BSE200 and BSE500 gained 1.80 per cent, 1.72 per cent and 1.69 per cent respectively. Midcap gained 1.90 per cent while BSESMALLCAP gained 1.66 per cent.

People walk past an anti EU (European Union) and anti IMF (International Monetary Fund) slogan in front of the Greek parliament in Athens, as Greece tries to avert a dangerous default that could spark a Greek Eurozone exit and raise serious questions about the future of the European UnionPeople walk past an anti EU (European Union) and anti IMF (International Monetary Fund) slogan in front of the Greek parliament in Athens, as Greece tries to avert a dangerous default that could spark a Greek Eurozone exit and raise serious questions about the future of the European Union

Top gainer in sectoral indices was BSEREALTY up 6.50 per cent on the back of spectacular gains made by heavyweight DLF. Other gainers were BSECONDUR 2.93 per cent, BSECAPGOOD 2.83 per cent and BSEBANKEX 2.80 per cent. There were no losers and the index to gain the least was BSETECH 0.18 per cent.

Stocks
In individual stocks, gainers were led by DLF up 12.67 per cent followed by Bajaj Auto 5.59 per cent, Dr Reddy 4.20 per cent, HCL Tech 4.13 per cent and HDFC 4.12 per cent. Losers were led by Canara Bank 4.29 per cent, Hindalco 2.99 per cent, Idea Cellular 1.91 per cent.

Pensioners wait outside a branch of the National Bank of Greece to get their pensions as Greece announced yesterday that it will shut banks for a week and impose capital controls, pleading for calm after anxious citizens emptied cash machines in a dramatic escalation of the country’s debt crisis
Pensioners wait outside a branch of the National Bank of Greece to get their pensions as Greece announced yesterday that it will shut banks for a week and impose capital controls, pleading for calm after anxious citizens emptied cash machines in a dramatic escalation of the country’s debt crisis

In global markets, Dow Jones lost 69.22 points or 0.38 per cent to close at 17,996.88 points. FII’s were buyers on a weekly basis after quite a long time and bought shares worth R682 crore. Domestic institutions were buyers of shares worth Rs 1,970 crores. The Indian rupee remained virtually flat losing 5 paisa or 0.08 per cent to close at Rs 63.64.

Monsoon
In India, the monsoon has been advancing quite well and this has been the wettest June in many years. This is a good sign but it is still early days and we have a long way to go for rains. Thursday saw June series expiry and the bulls continued to move with the momentum. June series expired at 8,398 points a monthly gain of 79 points or 0.95 per cent.

The IPO from Manpasand Beverages was subscribed and received decent support from QIB’s for whom 75 per cent of the issue was reserved. Retail investors too subscribed their portion while HNI portion was subscribed about 38 per cent. Overall the issue was subscribed 1.4 times.

Debt
The whole world is talking of Greece. The amount of debt that Greece has is not a very significant amount as the country or economy is small. The concern is twofold, with one being that default by Greece may force it to abandon the Eurozone and this may signal the beginning of the end of the Eurozone.

The second concern is that the “PIGS” economy may start defaulting or getting into trouble again. “PIGS” is the acronym for Portugal, Italy, Greece and Spain where in 2008 these economies were in serious trouble. The worrisome factor is that Lehman Brothers kicked off the 2008 global crisis and at that time nobody could gauge the fact that the crisis was so large.

This time, the issue of sovereign debt of Greece which has been acquired by many global banks and is being considered as safe and secure may actually start the crisis if and when Greece defaults. Meanwhile, over the weekend the Greeks decided to have a referendum of the people about the impending default which would happen if the money is not paid by today, June 30.

This referendum clearly indicates that Greece is going to default and would keep global markets on tenterhooks this week. With global markets not doing too well, with China taking a beating over the last few days on account of faltering growth, this news from Greece could be the last straw that may break the camel's back.

Impact
What will happen to India? In any case, over the last few months FII’s have been net sellers in India and any impact that Greece may have had on Indian markets is diluted to a large extent.

Any crisis which emerges with Greece would have a knee jerk impact on global markets and then Europe would be the worst affected and then there trading partners and lending partners. Indian banks are likely to have some exposure to Greece directly and indirectly and there would be that much of an impact on the most likely default. What should an investor do? Currently, stay put and allow events to unfold.

This week would be fast paced and see plenty of action on the Greece front. We saw what happened to markets on Monday where they opened gap down and lost close to 2 per cent before recovering. This Greek drama would continue for some more time and markets will sing and dance along with the Greeks. Be patient. Added to this crisis, is the fact that the German Deutsche Bank is under a cloud for fixing interbank rates.

It is also widely believed that they have a big exposure to sovereign debt of Greece. Once there is clarity on Greece, markets would see some upward movement but it makes sense to sit out for the time being.

Like 2008, the crisis as and when it happens or if at all it happens may not impact India much simply because Greece is more of a holiday destination and not much of a trading partner. However ramification mays hit far and one should be prepared for them if any.

Crisis
All in all Greece has the potential to keep markets subdued and would force the global leaders to resolve this crisis either which way as early as possible as a lingering issue will not help matters. Ride out the crisis, watching developments from the sidelines and once resolved re-enter the markets.

The markets will be nervous and volatile and the saving grace is that exposure to the markets has reduced in recent weeks. Greek drama as it unfolds will give opportunities to enter the market, but be patient. Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website http://ak57.in

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions.

Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.

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