The Greek saga continues

The future of the Euro is at stake in a touch and go situation

The markets in India gained on four of five trading sessions, but it was different elsewhere. World markets were literally held to ransom by Greece and what would happen in the tiny European country.

A woman passes by the headquarters of Bank of Greece daubed with the word ‘NO’ and a poster with a portrait of German Finance Minister Wolfgang Schaeuble that reads ‘Now tell him NO’. Pics/AFP
A woman passes by the headquarters of Bank of Greece daubed with the word ‘NO’ and a poster with a portrait of German Finance Minister Wolfgang Schaeuble that reads ‘Now tell him NO’. Pics/AFP

Greece is a small nation accounting for roughly 2 per cent of the GDP of the European Union. Greece has defaulted in the past as well and this would not be the first occasion they have done so. Yet the world is dancing to what Greece says. Post the referendum, it would be back to the negotiation table.

A crying elderly Greek man is assisted by an employee and a policeman outside a national bank as pensioners queue to get their pensions, with a limit of 120 euros
A crying elderly Greek man is assisted by an employee and a policeman outside a national bank as pensioners queue to get their pensions, with a limit of 120 euros

Before we get to the markets let us understand that the sheer difference in size of economies would keep us more or less insulated from the goings on of Greece. The worry is that this may lead to a contagion effect and there could be many more defaults in the world.

Movers and shakers
The BSESENSEX gained 280.95 points or 1.01 per cent to close at 28,092.79 points while NIFTY gained 103.80 points or 1.24 per cent to close at 8,484.90 points. The broader indices fared better with BSE100, BSE200 and BSE500 gaining 1.26 per cent, 1.33 per cent and 1.35 per cent. BSEMIDCAP gained 1.72 per cent and BSESMALLCAP gained 1.61 per cent.

Narendra Modi announced a new initiative last week. Pic/PTI
Narendra Modi announced a new initiative last week. Pic/PTI

In sectoral gainers, the top performer was BSEFMCG up 2.71 per cent followed by BSEBANKEX 2.12 per cent and BSECAPGOOD 1.91 per cent. The losers were led by BSEIT down 1.21 per cent, BSEREALTY 1.13 per cent and BSEMETAL 0.65 per cent.

People light candles displayed next to a message as they take part in a demonstration in support of Greece, at Sant Jaume square in Barcelona, Spain
People light candles displayed next to a message as they take part in a demonstration in support of Greece, at Sant Jaume square in Barcelona, Spain

In individual stocks, the gainers were led by IOC (Indian oil) up 8.35 per cent followed by Union Bank 5.75 per cent, Hind Petroleum 5.61 per cent and Idea Cellular 5.26 per cent. The losers were led by Tech Mahindra 9.81 per cent down, Hindalco 5.47 per cent and Vedanta 2.40 per cent (new name for Sesa sterlite).

Mutual funds
SEBI Chief UK Sinha speaking at the CII Mutual fund summit pointed out that the commissions paid to agents in India for selling mutual funds is the highest in the world and this cannot continue indefinitely. Commissions have to reduce significantly and the investor benefit from the same.

The inflow of funds into the mutual fund industry has increased significantly and the total corpus of funds is now over 12 trillion or R12 lakh crores. Both these are positive signs and if the commission reduces the performance of the fund would improve because ultimately the payment of commission is a cost to the fund concerned.

The attendance at the meet this year when compared to last year was significantly higher reflecting the buoyancy in the capital market. FIIs were significant sellers in the month of June having sold shares worth R5,480 crores while domestic institutions were buyers of almost double that amount at Rs 10,325 crores.

For the week ahead, provisional data shows that FII’s were small sellers of R700 crores while domestic institutions were buyers of R2,425 crores. The Indian rupee appreciated 20 paisa or 0.31 per cent to end at R63.44. Dow Jones lost 216.59 points or 1.21 per cent to close at 17,730.11 points.

Digital India
PM Narendra Modi launched Digital India and this is expected to change the way things happen. Transparency and ease are amongst the key benefits of this initiative. Leading industrialists have not only lauded the initiative but planned to invest large amounts of money which would lead to new job opportunities as well.

The revival of the monsoon would be a key vent for the markets and would be keenly awaited. This would be a far greater event than what would happen to Greece. On ground realities, things seem to be falling in place and the number of stalled projects have reduced by more than half.

Economic data is pointing to recovery and improvement and it appears that RBI Governor Raghuram Rajan is willing to cut rates further provided the monsoon does not play truant. It’s now like almost all signals are indicating go but for rain god Indra who needs to oblige.

Coming back to Greece which is now the favourite subject of discussion, it appears that the issues are far bigger than we can imagine. Greece has an ageing population and the percentage of people dependant on pension income is large. The pension and the fact that there needs to be substantial raising of taxes would make the tourist dominated economy at risk, if taxes are raised as visitors or tourists would go elsewhere.

The concern of markets is if the people of Greece decide to leave the European Union it could not only weaken unity but possibly be the beginning of the end of EU. This is the bigger concern and is rattling people even though no one is talking about it.

What should one do? Allow things to settle as markets never run away in one day. Also note, that heavens will not fall if Greece defaults. There will be negotiation and re-negotiation. Anyway as we said in school and college when you never understood something, “It’s Greek to me.”

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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