Greece has helped open the Pandora Box…Yet for the time being it’s just a catalyst for Market Repricing – as Dubai was…

• Greece Fears – Similar fate as Dubai Fears – though will continue for a prolonged period – will again gain momentum when FED starts reversing its policy stance
• For the time being – the collateral damage caused by Greece Fears in my opinion is a catalyst for Market Re-pricing
• The debt problem will haunt investors big time, which in my opinion will be lead by US and followed by UK…Greece has helped the Pandora box to get open

Before Greece, there was Dubai, before Dubai. Dubai turned out to be a catalyst for market re-pricing. I am not saying Greece problem is somewhat similar to Dubai but at the end of the day, Greece represents just 3% of entire Euro Zone. I am convinced that this is not a beginning of a crisis, but a kind of after adjusted effect to the financial and economic crisis, which prevailed till March 2009. I continue to believe that the panicking situation is still some time away, and that will be the time, when the cost of capital for raising funds will touch unprecedented highs for central banks and governments around the globe, which will be extremely bad for equities. This coupled with FED starting to reverse policy; EU problem becoming more prominent during that time will make us witness real capitulation.

Though much has not yet been discussed about the US debt problem may be because of the continued Dollar Strengthening not as much due to US specific factors, but other factors outside supporting it. Earlier it was Dubai Crisis, now its Greece and expectation of it becoming a regional and then global problem etc. The problem with Greece is that it does not have the strength to monetize its debt through quantitative easing but the way United States has, but my thinking says, that as and when ECB and EU feel that the Greece has a real contagion problem and the after effects could drastically revalue Euro on the downside (we have already see Euro touching 14 month low at 1.26 against $), there will be collective effect by bigger economies within EU such as Germany, France, Spain to go for quantitative easing and passing on the funds to relatively smaller economies within Euro Zone.

For example, for such a small economy as Greece, much larger European economies such as Germany and France (both of which are back on strong footing) would not want to suffer even if it prompts them to leverage their balance sheet and monetize their debt and provide a cushion to Euro. My assumption further strengthens from weekend news of Global policymakers unleashing an emergency rescue package worth about $1 trillion to stabilize world financial markets and prevent the Greek debt crisis from destroying the euro currency.

As far as EU crisis having impact India and fund raising plans of India INC. is concerned, some of which is already visible from the not so successful IPO by Essar Group. The best part is that majority of India INC. have already raised significant amount of fund abroad including Europe, when this problem are not making headlines. As far as PE investments are concerned, if we analyze the deals in the past one year, participation by European PE investors/funds relative to total PE deals in India has been miniscule.

On the contrary, I feel that this Greece issue has further delayed action on policy reversal front by another 2-4 months. It was expected that even after US starts reversing its policy, Euro Zone or the ECB will do so only couple of months after FED action. This issue has only enlarged the policy disconnection timeframe, which in turn might increase the probability of Euro/Pound carry trade, not necessarily to India, but am sure Emerging markets along with safe heavens such as Gold and Treasuries (mainly US) will attract significant amount of funds as a result of this.

So, based on these assumptions, I continue to believe that this unwarranted panic (on the back of Fear, a lot of which are Imaginary not real) presents an opportunity to get in the market at-least for the time being (for few months) before the actual Fear and Panic starts taking a toll on the market, which would be Real not Imaginary. Volatility will continue to be name of the game. The funny part of this panic is that the European markets/investors do not panic as much from their own debt crisis but panic more from the actions taken by the US investors, as if European Markets/investors have more confidence on US investors judgment of European economy than their own judgment. THIS IS PANIC BACKED UP WITH FEAR.

Thanking You,

Personal Regards,

Vinit Tulsyan

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