Major global indices like CAC 40, DAX Shanghai Composite, Hang Seng, Nikkei, Straits Times, Sensex, Nifty have lost 1% - 10% in a week
Global equity markets have been dragged lower over the past few sessions as the crisis in Greece escalated with creditors refusing to extend the country's bailout beyond its 30 June expiry date, sparking default fears over an International Monetary Fund (IMF) loan repayment amid the possibility of exiting the euro-zone.
In the past one week, major global indices like CAC 40, DAX in Europe; Shanghai Composite, Hang Seng, Nikkei, Taiwan Weighted and Straits Times in Asia have lost 1% - 10%.
Indian markets, too, have seen an increase in volatility over the past five trading sessions (from 23 June) with the India VIX, a gauge of market volatility, rising 26% to a high of 18.7750 on 29 June. The markets, in this backdrop, have lost nearly 1% with the CNX Nifty slipping to 8,318 levels on Monday.
Meanwhile, Greek PM Alexis Tspiras has called a referendum on July 5 to ask the Greek people directly whether the terms of the creditors' offer should be accepted. Rating agency Standard & Poor's (S&P) also downgraded the country's credit rating, saying the government's decision to hold a referendum on creditor proposals brought it closer to a default.
Investing strategy
So given this uncertainty, are the markets likely to drift lower and what should your stock strategy be? Should you buy, sell or stay invested?
Unlike in 2011-12, the Greek drama has now been unfolding for several years, so now it is much less of a surprise to financial markets, analysts say.
"Benefitting from the sharp decline in oil prices over the past year, Asia ex-Japan's fundamental vulnerability indicators have improved, which suggest that, within the EM universe, Asia is least exposed to financial contagion," points out a recent Global Markets Research report from Nomura.
Hitesh Agrawal, head of research at Reliance Securities expects markets to remain volatile in the near-term, until some breakthrough is arrived at on the Greece bailout front. The Nifty, he says, is likely to trade in the 8,000 - 8,400 range.
"Compulsions and common interest of Greece and EU (European Union) will ensure that there will be many swings in the saga, keeping German and Swiss Bonds in demand, Euro under pressure and global equity markets volatile. Certain stocks in information technology (IT), Pharmaceuticals 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, managing director, Kotak Mahindra Asset Management.
Rakesh Arora, managing director and head of research at Macquarie Capital Securities (India) also suggests that the impasse in Greece is a good opportunity to buy into the market as it consolidates before the next leg-up. Macquarie's top picks in model portfolio include Axis Bank, HDFC Bank, Larsen & Toubro (L&T), Maruti Suzuki, TCS, Crompton Greaves, JSW Energy, Strides Arcolab, TVS Motors and YES Bank.
Point out Nirav Sheth of Edelweiss in a co-authored report with Santosh Hiredesai and Prateek Parekh: "For India, large global shocks are transmitted via the balance of payments channel. Reversal in capital flows amid risk aversion puts downward pressure on the rupee, which in turn, delays monetary easing and impacts business confidence. We believe the Greece crisis is unlikely to trigger this reflexive chain reaction."
"Outside this, we continue to expect growth indicators to improve in H2FY16 anchored by higher government spending and higher real incomes. We hold our March-end Sensex target of 32,700, even while conceding that markets are likely to hold their trading range of about 26,000-28,000 in the near months," they add.
