4 things to know on Greek crisis

Financial markets around the world are interconnected. As money moves out of one market in crisis and finds its way into another, it is important to track the developments that take place a distance away from your location.

The crisis in Greece has created nervousness in the global financial markets.

Here are 4 things to note:

What is the problem?

Greece defaulted on a 1.7 billion euro loan repayment. This made the European nation the first rich country to default on an International Monetary Fund (IMF) loan. Already facing an economic crisis, the loan default prompted the leftist government to seek a referendum on the question of continuing in the Eurozone on Sunday. Eurozone consists of 19 countries that use Euro as a currency. The ball is now in the court of Greek citizens. A 'Grexit' - a byword for Greece's exit from the Eurozone - will impact the international financial markets including India.

How is India affected?

Greece imported 63 billion euros of goods and services in 2014, according to Financial Times, a UK-based financial daily. Greece accounts for a small part of overall sale of goods and services by multinational corporations. India is not directly affected by the crisis in Greece as the crisis-ridden country accounts for only 2% of the European GDP. The merchandise trade between India and Europe stood at $ 129bn in 2014-15, according to the website of NDTV Profit, a news channel. UK, Germany, France and Italy account for $ 97 bn of that trade. However, with a record close to $ 355bn foreign exchange reserves, India is better prepared.

What are the FIIs doing?

The Indian finance secretary was quoted in The Economic Times on Monday saying that if the interest rates rise in Europe and US, the Indian financial markets could see outflows. Foreign portfolio investors, who control a significant size of free float or non-promoter holding, have been net sellers in the equity markets for two straight months. In June 2015, they net sold equities to the tune of Rs 3,300 crore. The number was much higher in May 2015 at Rs 5,768 crore. This shows that they are not selling aggressively.

Stock markets-the road ahead

Share prices across Asia rose on Wednesday despite the default on loans by Greece. While short-term volatility is expected as an immediate reaction to Greek debt worries, investors are not in a hurry to pull out. Going forward, there is likely to be overall risk aversion in financial markets. This means global investor money could move to safer markets. Bonds of stronger economies would be bought and those in weaker economies would be sold. In equity markets though, investors may focus on corporate profit outlook in individual countries and allocate resources.

Source: Newsletter sent by kotaksecurities.com