Greek crisis may actually be favourable for India, say experts

India's stock markets on Monday stood up to a global crisis, on firm footing. A few hours after the Greece voted an emphatic 'No' to austerity measures, and in the process raised the risk of a financial crisis in the euro zone, India's markets opened in red, in line with its Asian peers. But by the end of the day, it was a different story.

On BSE Ltd, the 30-stock Sensex opened at 27832, almost 260 points below the previous close, but steadily inched up and closed at 28,208, 115 points above Friday's close.

Similarly, on the flip side, the partially convertible rupee opened the session on a strong note at Rs 63.62 against the previous close of 63.44. It recouped early losses on the back of the strong rally in equity markets, according to market players, and closed stronger at Rs 63.40 to the dollar.

India, among the most stable economically, cutting above the rest in BRICS countries, has proved that it can withstand the global tremors much more effectively.

For India, the failure of Greece is far from a crisis, for two reasons. One, India's direct and indirect exposure to Greece is limited. Two, most of Greek debt is owned by governments of other countries, and the European Central Bank has ring-fenced other EU countries by stating that it would buy their bonds.

But clearly, India's ability to withstand global shocks has increased substantially over the last two years. "The current account deficit has collapsed, foreign-exchange reserves have increased substantially, currency expectations are anchored, and India is considered the most macro-economically stable amongst the Fragile Five. So India should be relatively well protected from shocks emanating in Greece," said Sajjid Chinoy, chief India economist, JP Morgan.

What is more, a Grexit (potential exit of Greece from euro zone) is not a forgone conclusion just as yet. "And the propagation of any such shock is likely to be much more tempered, given that the ECB is expected to have a low pain threshold, and thereby intervene aggressively in secondary bond markets of peripheral economies," said Chinoy.

Greece said around 61% of those voting in the referendum had backed the government and rejected the bailout conditions.

Market sources said both the rupee and the equity markets shrugged off its initial losses on the expectation that a truce may be brokered when the EU finance ministers meet with Greece on Tuesday.

"Even the equity markets made a sharp recovery in late trades as investors resorted to short covering on new fresh negotiations between European Union finance ministers and Greece that is scheduled for Tuesday raising hopes of a resolution," said a report by India Forex Advisors.

Leading market players now call the Greece tremors an opportunity.

"Investors should ideally use every dip to accumulate quality stocks and hold them for a period of 2-3 years," said a foreign stock broker.

Another argument is that Greece crisis is already priced in, as it was simmering for the past couple of years.

Market experts, however, warn a spillover effect, though marginally.

Ananth Narayan, managing director, regional head of global markets, South Asia, Standard Chartered Bank, is not overtly concerned.

"But the rub-on effects of the Greece will impact neighbouring countries of Italy and Spain. This is a concern because almost the entire debt in these countries is held by foreign institutions. But the mandate for Europe to sign a better offer for Greece may open a Pandora's Box as it would mean that other countries in the area will also demand for such dispensation."

He believes that the Greece crisis, if it does not have contagion impact, will be favourable for India. "This is because the price of crude will remain below $60 a barrel. Commodity prices will remain soft. The US Federal Reserve may postpone its plans to hike rates by September. However, it does not belittle the impact of the capital flows to the country drying up," said Narayan.

N S Venkatesh, executive director in charge of treasury and chief financial officer, IDBI Bank, said, "Greece issue will not impact India as we do not have any interconnectedness with that country. Indirectly, it will have a beneficial impact with crude prices coming down and the yields on US treasury falling by 8 basis points. Greece does not want to exit from the eurozone, they have only said `No' to the austerity measures."

However, Murthy Nagarajan, head – fixed income at Quantum AMC, believes that the Greece issue may increase risk aversion towards emerging markets, which would affect capital flows to the Indian markets on a temporary basis.