Sunday, January 25, 2015

Should the Greek Elections worry Indian Traders?

Yesterday (Saturday, January 24), I was a speaker at the CNBC Investor Camp, Gurgaon. In the Question and Answer session, a trader asked about the likely impact of the Greek Elections being held today, on the Indian Markets. What will happen if the left wing party wins?

My Notes:

Greece is part of the Euro, but has large borrowings which it effectively cannot pay back. The money was borrowed from European Banks, when the going was good. Funds were used to finance expenditure instead of building up productive capital. For example, money was used for payments to Government Employees, subsidies etc. Now, how does the money get repaid? Well, the other European countries have imposed an austerity program over Greece, saying the country has to cut expenses and replay.Now, the Greeks do not like this.Today's elections are likely to bring the Syriza party to power, which has promised not to replay the debts.

I just gave this long background to explain what is going on in Greece. If Greece defaults on its debt, the first problems will come in Europe. India will be affected only when European problems start flowing to India. This may or may not happen.

This scenario assumes that no one else will be worried about Greece, except us Indians. The truth is: people in government, central banks are the persons who will take necessary steps. Such steps may or may not be successful. But, we can assume that Europe will not sit idle.

Conclusion: The impact of events not directly related to us, should usually not be a cause of making trading decisions. The markets will discount most news events. Yet, our mind wanders away to numerous non-essential thoughts, while the primary task of focusing on price action is neglected.

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