Indian Stocks Fall On Greek Political Crisis, High Inflation

   on May 14 2012 8:20 AM
BSE Sensex
BSE Sensex Reuters

Bombay Stock Exchange's Sensex lost more than 100 points Monday afternoon trade as the slump in European markets and a worse-than-expected inflation for April hit the markets hard.

The Sensex was down 102.01 points to close at 16,190.97 and NSE benchmark Nifty dropped 37.55 points to 4,891.35. The rupee lost 22 paise to reach 53.85 per dollar.

The Greek political and economical woes weighed heavy on European markets as most of the European markets lost nearly 2 percent. 

Monday is the deadline for Greek political parties to form a government and if the parties fail in their attempt, the Greek President will have to announce fresh elections.

France's CAC, Briton's FTSE and German DAX began trading 1.3 to 1.5 percent low. The Greek crisis hit euro as the currency slipped to $1.2877, down 0.3 percent from late US trade Friday, a 0.8 percent decrease in April.

The Greek crisis and the possibility of the country's exit from the euro zone have prompted the investors to rely on the safety of dollars and German bonds, taking the euro to in lowest level in the past four months.

The political crisis over the prospect of Greece's exit from the euro zone is mounting up as the apparent split between the politicians and the European Central Bank (ECB) on the issue has created uncertainty.  

Majority of the political authorities feel Greece should be retained in euro zone and the ECB should relax its rules on the issue.

While most politicians argue for Greece staying within the euro, ECB officials seem to laying the case for Greece exiting EMU, Reuters reported citing a Morgan Stanley note to clients.

The key driver in our opinion will be how the ECB reacts to the situation. We expect the ECB to ease policy, maybe through unconventional policies in coming months to support the situation in the periphery, Raghav Subbarao, currency strategist at Barclays, was quoted as saying by Reuters.

German Chancellor Angela Merkel's crushing defeat in a state election in Germany Sunday further worsened the investor sentiments.

Selling rallies in risk assets seems the best way to make money in most asset classes given the event risk is still very real this week, Chris Weston, an institutional dealer at IG Markets, told Reuters.

India's wholesale price inflation climbed to 7.23% in April, compared to 6.89% in the previous month. The price of food and manufactured items soared in the month.

The higher-than-expected inflation figures have dampened the hopes for further rate cuts by the Reserve Bank of India in the immediate future.

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