What happens if Greeks vote 'no' in Sunday's referendum? A 'no' vote could drive Greece towards an exit from the Eurozone and a turmoil in global financial markets, says Bank of America Merrill Lynch (BoAML). The global market volatility could also hit Indian shores, even though India has very little exposure to Greece, says BoAML. (Full Coverage of Greece Crisis)
If the Greece crisis impacts global markets, inflows into Indian stock markets could suffer, says BoAML. In that case, Indian stock markets could get hit because foreign investors have close to 25 per cent holding in Sensex companies. But India's growth prospects and the volatility in Chinese markets could limit outflows, it added.
BoAML also says that the Greece impact could mean the Reserve Bank of India (RBI) delaying a rate cut. Expectations are rising that the RBI may cut rates at its August 4 meet due to the better-than-expected monsoon and benign inflation. Jamal Mecklai, chief executive officer of Mecklai Financial Services, also said the Greece turmoil could weigh on the RBI and it may keep rates steady in August.
The rupee also may get impacted from the Greece crisis, though it has held steady against the US dollar so far this week, says BoAML.
If the dollar gains against the backdrop of a European crisis and outflow surge from Indian markets, the rupee could come under pressure. But BoAML expects the RBI not to let the rupee fall beyond 65 per dollar. The central bank could sell $15 billion in the forex market to defend that level, it added.
RBI Governor Raghuram Rajan had earlier said that India's nearly $355 billion forex kitty could help it sail through if the Greece crisis escalates.
On the other hand, if India attracts big inflows due to its economy's "negligible exposure to Greece" and better growth prospects as compared to other emerging countries, the RBI could buy dollars to keep the rupee at 60-62 per dollar, BoAML said.
The rupee's appreciation has been one of the factors to hit India's exports, Mr Mecklai said. Continuing its declining trend, India's exports shrank by about 20 per cent in May, marking a fall for six months in a row.
Market expert Ajay Bagga, however, sees the domestic factors as a bigger risk to Indian stock markets. He says the rupee and Indian stock markets are currently pricing in the Greece situation but earnings of Indian corporates remain a worry.
Nifty risks falling to 8,000 level this month because the market is overly optimistic on earnings, Mr Bagga said. Markets are discounting a 15-16 earnings growth this fiscal year but it could turn out to be 9-12 per cent, he added.
