Tuesday, June 30, 2015

Greek default: Consequences for India

Greece has finally become the first developed economy in the world to default on IMF repayment. However, the stock markets around the world have taken the event in their stride. There was some selling of stocks around the world, but the euro itself was stable in currency markets and the main index of financial volatility (Vix) was much tamer Monday than it had been in some acute earlier phases of the crisis. Majority of global investors, seem to think that the European Union and the European Central Bank have the tools in place to contain any financial fallout from a Greek default and exit from the euro.
 
Our markets are also expected to rebound in the short term, simply because the looming uncertainty in now over, or at best would get over after the Greek referendum result on 5th July. In a way it is good that the Greek creditors have said no to the Greek bail-out, strengthening the cause of imposing financial discipline on errant borrowers. With the exit of Greece from Euro zone, which seems inevitable now, ends the ill-conceived dream of having a common currency- 'Euro'. In the medium term, it is likely to have an adverse impact on companies having a large chunk of their revenues from the Euro-zone.
 
India need not worry too much about the consequences of the Greek exit. On the other hand, India needs to focus on its own problems. The Govt. continues to roll out new campaigns one after the other, Digital India being launched on 1st July, but it is unable to arrive at a consensus with the opposition on passage on important bills in the parliament. The monsoon session of the parliament promises to be lack lustre unless some serious efforts are made by politicians to sort out their differences. The setback to the prospects of bountiful monsoon rains is looming large over the revival of the rural economy. A temporary rebound in our markets should not be seen as a return of the bull run. We must brace for an extended summer of discontent, before autumn brings some cheer to the markets. It would be a better option for investors to sit on the side lines and wait for the 'green-shoots' of economic revival to emerge.