The Greek referendum has overwhelmingly voted against accepting the bailout package conditions and now set stage for yet another round of discussions. While it may be good politically for the Prime Minister of Greece to have the backing of the people when he negotiates, it makes hammering out a solution that much more difficult. Markets will react adversely and already Japan and Hong Kong are down between half and one and a half percent. India would also open negatively but things should stabilise.
What next? I believe that Greece is now on a path of confrontation and will ultimately have to leave the Euro and subsequently the EU. There is no precedence to it but history will be written. This is not the first time that Greece has defaulted but they have done so for the umpteenth time. You could say that it happens periodically and they have been bailed out each time but the austerity measures imposed after the bailout have not worked apparently. The world will have to live with Greek crisis and they have no choice.
Coming back to India, while impact of Greece will affect us, it’s a matter of time in days that we will start looking at quarterly results and the revival of the monsoon. While the initial round of monsoon was great and it kick-started the sowing season in full earnest, we now need the monsoon so that transplanting can begin.
The other good development that has happened is the fact that number of stalled projects for want of clearances has dropped significantly. Secondly RBI governor is favourably inclined with steps being taken by the government on the economic front. Therefore unless the monsoon decides to play truant, a rate cut sooner than later is on the cards. This will help the capex cycle as well as give further boost to manufacturing which is already showing signs of turnaround and revival.
The markets will be choppy and have a downward bias in the immediate short term. Greece will have a direct bearing on them and for India a bigger driver would be quarterly results and the monsoon. Do not get carried away by Greece as the other two India centric factors would have a greater bearing than the former. Play the markets carefully and use sharp dips to enter.
