In case of Greece's exit (Grexit) from the Eurozone, foreign portfolio investment (FPI) equity inflows into India could stall as markets would swing to risk off, Bank of America Merrill lynch said in a research report.
"Our Europe economists think this will make Grexit that much more difficult to avoid. Although India's exposure to Greece is negligible, in our view, contagion, if any, could travel through markets.
"We would expect FPI equity inflows ($0.3 billion in FY16 so far) to stall further as markets swing to risk off, although India's growth prospects and China's volatility should limit outflows," BofA Merrill lynch Research said.
In the forex market, BofA believed that the Reserve Bank would sell $15 billion to defend Rs 65/USD.
"We believe that the RBI would sell $15 billion to defend Rs65/USD levels to anchor INR expectations in the FX markets. Not surprisingly, Governor Rajan... Reiterated that the INR is at fair value," it said.
The rupee's performance in the current Greek crisis has been broadly in line with peers. RBI could let initial shock blow over, it added.
"$15 billion leaves 8 months' import cover on March 2016 basis... We continue to peg this at about $15 billion assuming that the RBI must maintain 8-month import cover for rupee stability," it added.
"The G-sec market remains relatively insulated to a 'no' Greek vote. While this would postpone its expected $5 billion FPI G-sec limit hike and any possibility of an August 4 rate cut, neither is really priced in."
"We expect the RBI to hike the FPI G-sec limit by about $5 billion if Greece resolves itself next week," it further said.
On open market operations, it expects no such activity until December.
The RBI will likely prefer to inject liquidity through repos rather than OMO purchases for now in case of capital outflows.
"We estimate that the money market liquidity will likely persist at sub-Rs 500 billion," the report added.