Greece crisis fuels market volatility

Slight volatility is expected to hit the Indian equity markets in the coming week as investors will be jittery on account of the Greek referendum, upcoming first quarter results, the monsoon's progression and key macro economic data. However, market observers predict that the volatility could be short-lived, as strong domestic fundamentals, economic reforms and a pick-up in government and private investments take place.

"Markets are expected to be slightly volatile in the beginning of the week due to the Greek referendum. For the short-term the Greek issue will be big enough for the market as a cue," Devendra Nevgi, chief executive of ZyFin Advisors, told this correspondent on Sunday. "However, after the initial factoring-in of the situation, the domestic fundamentals such as policy initiatives and data points will be back into focus.

These domestic factors are positive and will drive the markets to stability," he added. According to Dipen Shah, head of private client group research with Kotak Securities, the markets are hopeful that the outcome of the Greek referendum will not have any significant repercussions on the global economy - and especially India.

"The Indian economy is not linked to Greece in any major way. While there can be an impact on currency due to potential outflows, the strong forex reserves should help in reducing the impact to a great extent," Shah said. The Greek government has called for a referendum to let the people decide on the terms and conditions of another bailout.

Gaurav Jain, director of Hem Securities, elaborated that the positive bias in the Indian markets is expected to continue with Nifty having the potential to reach the 8,700-mark on the higher side. "If things turn out to be negative, then the positive bias will help in mitigating the damage. Nifty in that scenario can be pulled down to the 8,000-mark on the lower side," Jain said.

The markets will be looking ahead for key inflation and factory output data points like CPI (consumer price index), WPI (wholesale price index) and IIP (Index of Industrial Product) numbers. "Traders will be eyeing the industrial production data for May scheduled to be announced on July 10. Needless to say, the progress of the monsoon will also remain in focus for the entire month," Jayant Manglik, president for retail distribution with Religare Securities, said.

The IIP data assumes significance as that for core sector industries released on June 30 showed the fastest pace of growth in the last six months ended May 2015 - at 4.4 percent year-on-year. The eight core industries which comprise 38 percent of the total weight of items included in the Index of Industrial Production (IIP) stood at 178.6 as against 162.4 in April.

Analysts also point out that the countdown has begun for the earning season scheduled to start from July 21, which they believe holds the utmost importance in shaping the market's direction. "There is a hope that the first quarter (Q1) numbers due to be released soon will be better than the Q4 of 2014-15.

Factors like lower inflation, easing of monetary policy and stable rupee are expected to be translated into better Q1 numbers," Anand James, co-head, technical research desk, Geojit BNP Paribas, said. "There is also hope that the Q1 guidance is also going to be positive. However, in the worst case scenario, the markets seem to be ready for any negative surprises, especially in sector or stock-specific areas," he added.

"The progress of monsoon will also be in the focus. We have noticed weakening of monsoon in the early part of this month. The continued weakness coupled with any adverse inflation numbers will give out negative signals for future lending rate cuts," Anand added.

The barometer index of the Indian equities market, the 30-scrip Sensitive Index (Sensex) of the S&P Bombay Stock Exchange (BSE), gained 281 points or 1.01 percent during the weekly trade ended July 3. The index closed at 28,092.79 points from the previous weekly closing of 27,811.84 points on June 26.

By Rohit Vaid