Greece Goes into Anti-austerity Protests as Bank Shutdown BitesReuters

Global financial markets including India remain jittery going into Greece referendum on Sunday, in which the Greeks will vote on whether the country should accept the terms set by the creditors to receive further bail-out funds.

A no-vote in the referendum could increase the possibilities of Greece leaving the eurozone and could rattle the markets.

Indian markets are also expected to feel the heat though the country's direct exposure to the ongoing crisis is limited, Bank of America Merrill Lynch (BoAML) told NDTV Profit.

Inflows into Indian stock markets may struggle to pick up if Greece crisis hits global markets, says BoAML.

As overseas investors account for nearly 25% stake in Sensex companies, the stock markets could see huge outflows if crisis in Greece intensifies.

However, "India's growth prospects" and ongoing volatility in Chinese equity markets are expected to curtail the outflows, according to BoAML.

The brokerage also sees chances of the Reserve Bank of India (RBI) postponing its rate cut decision due to Greece crisis.

"Benign inflation" and above-normal monsoon rainfall have raised expectations of a rate cut by the RBI at its meeting on 4 August.

"Greece turmoil could weigh on the RBI and it may keep rates steady in August," Jamal Mecklai, chief executive officer of Mecklai Financial Services.

The Indian rupee could also see some volatility if Greece crisis takes a new turn. If dollar strengthens on fears of contagion from Greece crisis, it could rise in outflows from stock markets, thereby leading to depreciation of the rupee.

However, BoAML expects the RBI to intervene in the forex markets to stem the fall in rupee beyond 65 against the dollar. RBI Governor Raghuram Rajan had said that the country's forex reserves are at sufficient levels to weather any impact from Greece crisis.

India's exports may benefit from a fall in rupee, as they have declined by 20% in May, marking their sixth consecutive monthly fall.