In the currency market, euro turned weak against the Indian rupee to Rs 70.97, from Rs 71.25 in the last trading session, even as the US dollar and British Pound gained.
With Greece witnessing a full- blown economic crisis, India's software and engineering exports may take a hit and the country may also face larger capital outflows due to a weaker euro, industry and government officials warned on Monday.
The Greece situation battered the stock markets globally today, including in India, as foreign investors looked to re- allocate their portfolios in the wake of weakness in euro against various other currencies, while the companies with direct exposure to Eurozone markets were hit hardest.
Greece's financial crisis intensified with Prime Minister Alexis Tsipras announcing capital controls and shutdown of banks at least for a week.
Reacting to the news, the benchmark BSE Sensex dropped by more than 600 points in early trade today, but managed to recoup some loses later on selective buying in the beaten-down counters and settled the day lower by 167 points at 27,645.15.
In the currency market, euro turned weak against the Indian rupee to Rs 70.97, from Rs 71.25 in the last trading session, even as the US dollar and British Pound gained.
Finance Secretary Rajiv Mehrishi said the economic crisis in Greece may trigger capital outflows from India and the government is consulting the RBI to deal with the situation.
"Greece crisis does not have any effect directly on India.
(But) interest rate may firm up in Europe. In case of firming up of interest rate in Europe, there can be outflow of capital from India," Mehrishi told reporters here.
This is contrast to RBI governor's Raghuram Rajan comments last week that India may be able to withstand the impact.
Commerce Secretary Rajeev Kher said exports from India would be impacted negatively if the European Union is hit from the Greece crisis, although he ruled out any major direct impact of the prevailing Greek situation.
"India does not have large exposure of Greece as far as trade is concerned," he said.
However, engineering exporters' body EEPC India said the economic crisis in Greece will impact engineering exports from India as European Union is the largest destination for such shipments. The industry body said it sees indirect impact from the UK, Italy, Turkey and France.
Industry chamber Assocham also said Indian economy is not really centric to Greece directly but if European Union is impacted due to this then India could be affected.
Europe is India's largest trading partner with US $129 billion of merchandise engagement in 2014-15. Of this the European Union accounted for US $97 billion with the UK, Germany, France and Italy being the leading partners.
The continent is the second biggest outsourcing market for the Indian IT firms after the US.
European stocks traded sharply lower with indices in Germany, France and the UK plunging in the range 1.68% to 3.31%.
Technology stocks in India faced selling pressure too with HCL Tech falling 2.78%, Infosys dropping 1.58%, Wipro was down 1.23% on BSE.
Besides, shares of Bharat Forge plunged 4.03%, Tata Motors was down 2.07%, Havells India went down by 1.66%, Motherson Sumi Systems lost 1.32% and Tata Steel fell by 0.79%.
India's largest private sector lender ICICI Bank on Monday said it sees no impact as it has no exposure to Europe.
"We have no exposure in Europe and not made any finances to the companies there. So the question of Greek debt crisis impacting the bank, does not arise," the bank's managing director and chief executive Chanda Kochhar said.
Greece shut down its banking system, ordering lenders to stay closed for six days starting today to avoid a run on the country's banks. The steps, a fateful climax to five years of debt crisis, puts Greece closer than it ever has been to an exit from the Eurozone.
Greece imposed capital controls and closed banks until at least July 6 after Prime Minister Alexis Tsipras decided to call a July 5 referendum on a proposed bailout package.
Shares of Indian companies with exposure to Europe are likely face selling pressure over the next few days.
"Certain stocks in IT, pharma and auto ancillaries having significant exposure to Euro will underperform the market.
Since Greece issue is well known for some time, it is unlikely to cause as much correction as the 2008 global crisis," said Nilesh Shah, MD, Kotak Mutual Fund.
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