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Five key takeaways: How Brexit will impact India

As the verdict came out, speculations have been doing the rounds on how Brexit will impact the global markets and economy. For India, though, it will have only short term consequences.

Gurpreet Kaur | June 29, 2016 | Updated 10:51 IST

In a globalized world, where uncertainty is the new norm, Britain has finally voted in favour to exit the European Union, becoming the first country to leave the bloc. And yes, it was one close call, that witnessed the end of a 43-year alliance. As the verdict came out, speculations have been doing the rounds on how Brexit will impact the global markets and economy.

"Brexit again demonstrates that India is more and more susceptible to global events and unlike 2008, the economy is much more integrated with global markets today. Measures to safeguard the financial ecosystem and to prepare for timely response, must be taken to ensure that the impact is minimized," said Anurag Jain, Market Development Lead for Thomson Reuters Risk Business.

However, few experts pointed out it will have only short term consequences for the country.

"Fundamentally, India has nothing to do with Brexit. The country is relatively immune, considering very less dependence on UK as a foreign investor," said brokerage IIFL in a research note.

Ajay Bodke, CEO & Chief Portfolio Manager - PMS, Prabhudas Lilladher also said that nearly 65-70 per cent of Indian GDP is domestic consumption, therefore, we should not worry over Brexit much.  

Here are some takeaways on how the historical decision will impact India:

1. Market and rupee taking a severe knock

In a knee-jerk reaction, the domestic stock market and rupee may have tumbled violently, it will only last in the short-term. G Chokkalingam, founder, Equinomics Research and Advisory said Indian equity market is overreacting to this development.

"It is not a natural calamity or militancy attack to stop businesses and industrial production in Europe. In two weeks, market will start ignoring Brexit and the focus will shift to monsoon performance and corporate earnings," told Chokkalingam to Business Today online.

Meanwhile, The Reserve Bank of India started intervening in the currency markets after the rupee lost more than 1% in the opening trade on early trends that Britain would leave the European Union following a nationwide referendum.

ALSO READ: Here's what Raghuram Rajan had to say about Brexit

2. Trade and investments: 'Paradise Lost' or not

One of the major reasons why trade will be affected is because Britain, since decades, has proved to be a gateway into Europe and the end of this union will make Britain less attractive for Indian investors since now, India will have to maintain separate trade negotiations with both, Britain and the European Union.

India is the second largest source of foreign direct investment (FDI) for Britain and it would not want to lose its Indian investors. Thus, India can expect a less regulatory British market for trade and investment.

3. India Inc might be affected in the long run

Numerous Indian companies have substantial operations in the United Kingdom, employing a large number of people and are ever-growing in their size. After Brexit, Indian companies will have to rethink their business strategies. Most likely, India would want to change their mode of entry from London to any other European country in order to pursue its desire for free trade since companies may find it more difficult to directly access.

The 'vote-out' will also adversely affect the $108-billion Indian IT sector because companies like TCS, Infosys and HCL are profoundly dependant on Britain for their IT exports.

4. Job market will become more competitive

For decades, a large number of Indians have been staying and living in the UK. The concerns over European and other immigrants coming into UK will have a serious impact on the job market available for Indians. After Britain's decision to leave the European Union, the job market will become more competitive and it will become a grave issue for Indians working in the United Kingdom.

5. No, Britain is not exiting Europe so soon!

Britain might have voted out of the European Union, but, it cannot be denied or swept aside that the EU referendum is not legally binding. British officials may take a lot of time to pull the trigger since according to Article 50 of the Treaty on European Union states, the member state will have to notify the EU of its withdrawal and then, the EU will necessarily have to try to negotiate the withdrawal agreement.

So, Britain, as of now, has a two-year window where it can negotiate issues like trade, migration, taxes and regulations on different sectors.

But for that to unfold, we will have to wait and watch!


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