Greece’s referendum dashes market hopes; sharp sell-off likely

MUMBAI: Greeks dashed the hopes of investors after initial results showed the country’s voters opted against the bailout conditions of international lenders and eurozone members. Indian stocks are likely to open sharply lower on Monday tracking other Asian markets as European policy makers and investors get down to assess the impact of the outcome of Greece’s referendum on the region’s financial system.

The extent of decline in Indian stocks would depend on how other Asian markets open on Monday. Asian markets open earlier than Indian bourses.

With two-thirds of the votes counted at 1:30, 61% of Greeks rejected the terms of the lenders’ bailout including tax increases and spending cuts. Greece’s future in the eurozone is uncertain as markets will also closely watch statements by the region’s leaders mainly German Chancellor Angela Merkel, who is scheduled to meet French President Francois Hollande on Monday evening, according to reports.

A lot of how the market behaves during the day would depend on European Central Bank’s (ECB) response to the situation. If the central bank decides to stop emergency lending to Greece’s banks, it could lead to insolvency of the country’s lenders. Investors are worried that deepening crisis in Greece’s financial system would spread to other countries.

Investors will closely watch the yields on other larger debt laden countries such as Spain, Italy and Portugal on Monday as short-sellers are expected to pounce on these securities if the ballot outcome is a no.