Grexit or not, brace for market volatility: Kotak Equities

Moneycontrol Bureau

The crisis unfolding in Greece will result in a global risk-off in the emerging markets (EMs), with India being no exception, SAYS a Kotak Institutional Equities report.

While India has negligible direct exposure to Greece, the contagion risk will put pressure on the Indian rupee and increase market volatility, thereby risking capital inflows, the report saysThe report states, "We expect RBI to use both the forward (around USD 7.5 billion of bet long positions over next three months) and the spot market (over USD 350 billion of FX reserves) to manage the pressures on INR (rupee). " Quoting an IMF report, Kotak says Greece would require additional funds of 52 billion euro through October 2015 to December 2018. Under the current arrangement, 16 billion euro is available to Greece,implying that 36 billion euro of new European money was required. On July 19, 20 Greece needs to make the largest coupon payment of the month, to the tune of 199 million euro and 104 million euro respectively. Furthermore, the ECB held 3.5 billion-euro bond too matures on July 20. If the government does not strike a deal with its lenders the European Central Bank (ECB) will shut down its Emergency Liquidity Assistance (ELA). This could be a step Greece's removal from the European Union.

"Even without a Greek exit, we expect significant global volatility and pressure in the fixed income and currency markets over the next few days/weeks," the Kotak report said.

(Posted by Ritika Dange)