Greece deal, China to keep markets on edge for now

For India, local issues like inflation, corporate results, progress of monsoon and the monsoon session of Parliament are added concerns, analysts say

The deal between Greece and the euro-zone saw a relief rally across global equity markets on Monday with the most major Asian and European bourses gaining 1% - 3%. The S&P BSE Sensex and the CNX Nifty, too, ended nearly 1.2% higher at 27,961 and 8,459 levels.

In China, over the past two weeks, People's Bank of China (PBOC) has cut interest rates and announced liquidity support to China Securities Finance Corp (CSFC) that manages the nation?s short selling and margin trading.

As a result, the slide in Chinese markets that saw Shanghai Composite slip nearly 32% from its peak of 5,166 levels on 12 June, 2015 in a fortnight also seems to have been contained, at least for now.

Though the global markets have given a thumb-up to these developments, can these issues resurface and what is the road ahead for the Indian markets?

Analysts say that there is a lot of ground one has to cover before the proposal to Greece becomes a deal. All the proposals, according to reports, have to be approved by the Greek parliament by Wednesday and then the parliaments of each of the EU nations have to ratify this by Sunday.

Explains London-based Jan Lambregts, managing director and global head of financial markets research at Rabobank International: "My first interpretation is that it?s positive a deal has been struck, as the alternative would have been worse for both the creditors and for Greece. Having said that, the process has been so difficult and so much trust was lost, that the ultimate deal will be difficult to implement and its long-term viability is very much in question. Notably, the Greek economy and its finances have deteriorated so much in recent months, that the cost of a bailout is now a moving target."

"The initial market reaction has been relatively muted / moderately positive. This in part reflects investors base case scenario was for a kick-the-can-down-the road deal to be reached? which now has happened. But it may also partially reflect a wait-and-see in terms of whether Greece can deliver in the upcoming few hours and successful memorandum of understanding negotiations to be followed and ultimately concluded afterwards," he adds.

U R Bhat, managing director, Dalton Capital Advisors also feels that Alexis Tsipras faces an uphill task convincing the Greeks regarding the new proposals. "The Greeks have already rejected proposals that were much milder to the ones announced on Monday. The recent referendum sought by the government had rejected the earlier milder proposals and now the government will now have to go against this. All this can have political ramifications as well. The next one week will be crucial for this deal, and in turn, the global financial markets including India."

"I also don't think that we have heard the last word on China as well. Authorities in China have virtually forced people not to sell. Whatever little has been sold has been bought by the brokers under instructions. So the Chinese markets have reached an uneasy equilibrium. At some stage, normalcy has to return. Besides these global issues, Indian markets will also react to the corporate results and the macro economic data such as inflation, monsoon growth etc. All these factors will keep the markets volatile," he adds.

Gautam Chhaochharia, head of India research at UBS, however, feels that uncertainty from Greece and China were a small overhang for the Indian markets. He expects investors to now focus on local macro and micro data points.