Euphoria could be short-lived, as Greece solution is short-term.
The first full-day trading session of Samvat 2068 is likely to be strong on the back of some positive global news.
The world markets staged a smart rally on Thursday, as European leaders convinced bondholders into accepting 50 per cent writedowns on Greek debt. Indian equity markets are also expected to get a boost due to these developments, at least in the near term, according to market experts.
“Since August, we have already seen an outflow of $2 billion because of both domestic and global concerns,” says Rakesh Arora, managing director, Macquarie Capital, a foreign institutional investor. “The relief on the global front, along with the Reserve Bank of India’s indications that there could be a pause on the rate hike cycle, should lead to a near-term rally for Indian markets.”
On Thursday, when the Indian markets remained closed on account of Diwali, world markets staged a significant rally when the Greek bailout package — and the rise in the rescue fund’s capacity to $1.4 trillion were announced. There was good news from the US as well. The latest data showed that the US economy grew 2.5 per cent in the third quarter – the fastest in a year.
Some of the major European indices gained as much as six per cent, whereas others gained in the range of 3-5 per cent each. While FTSE was up nearly three per cent, DAX and CAC gained 4.86 per cent and 5.50 per cent, respectively. The euro advanced to a seven-week high against the dollar, rising above $1.40 for the first time since September.
The US benchmark indices – the Dow Jones Industrial Average, S&P 500 and Nasdaq – opened well over two per cent. Asian markets also gained ground on Thursday, with the Nikkei rising more than two per cent and Hang Seng up 3.26 per cent.
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Market experts are of the view that the Indian market will also react positively when it opens for trading tomorrow. And, there could be a continuation of the good cheer, at least in the near term. In the recent past, the market has suffered due to lack of clarity on the outcome of the eurozone crisis due to a lack of consensus among major member nations.
Indications that the Reserve Bank of India is done with increasing key rates will be a domestic positive. On Tuesday, the central bank raised the repo rate by 25 basis points while hinting that the probability of another rate increase during its next review in December is low.
Analysts add that the latest move will convince many institutional investors to take fresh positions in emerging markets, including India. Though these countries are also seeing a downward revision in their growth rates, they are much better placed than their developed counterparts.
However, some fear this euphoria could stay for only a little while. “Our markets will rise in tandem with the global markets on the developments in Europe,” notes V K Sharma, head, private broking & wealth management, HDFC Securities. “But the developments are short term positive. In the longer term, this does not solve anything. Even 10 years down the line after the 50 per cent haircut, the Greek Debt will remain 120 per cent of the GDP. So what have you gained? Expect another haircut in a few months.”
According to him, the important issue is a structural one. “What happens to the holders of CDS (credit default swaps) of Greek bonds?” asks Sharma. “If the Italian bond holders tomorrow have to go through a similar exercise, it would mean that while they are holding valid CDS and yet, have no protection against haircut. This is a very dangerous trend.”