Brexit fallout: Anti-EU and Anti-globalisation voices to gain strength
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Brexit fallout: Anti-EU and Anti-globalisation voices to gain strength

Britain has voted to leave the EU. This will lead to a period of uncertainty, risk assets across the world are witnessing selling pressure which could intensify going forward.

  • June 24, 2016  
  • |  
  • UPDATED   18:46 IST

Navneet Munot
Britain has voted to leave the European Union. This will lead to a period of uncertainty, risk assets across the world are witnessing selling pressure which could intensify going forward.

While market participants have been discussing about it but actually the risk wasn't priced in adequately. Brexit is not a one-off event but may have far reaching implications. Anti-EU voices in other parts of Europe will gain strength. Anti-globalisation voices (like Donald Trump) will gain strength.

British economy will face challenges, Pound Sterling has witnessed severe beating today. From India's perspective, companies having direct exposure to Britain will get adversely impacted. If Risk-off trend continues then there could be further outflows from emerging markets like India impacting rupee and equity markets.

On a relative basis, India's macro fundamentals have improved with continuing reforms, record level of Forex reserves, contained fiscal and current account deficit and inflation under check. Private consumption has been showing signs of improvement. Better monsoon, government spending and VII pay commission should help in sustaining the growth momentum.

But we have to remain vigilant as there are strains in corporate and banking sector balance sheet. We can't be completely insulated from what's happening in rest of the world. Global economy continues to face challenges and Brexit has added another dimension of risk. Rupee is likely to remain under pressure as U.S. dollar gains on safe-haven demand. While there could be some outflows from FIIs in Indian bonds; in a global risk-off environment, bond yields are likely to soften.

Our equity markets will continue to gyrate to the tune of global sentiments in the near term. After the run-up in markets since March, some bit of correction was warranted and Brexit event has acted as a catalyst. Historically, these kind of global events have impacted Indian market disproportionately given the excessive dependence on FII flows. With steady flows from domestic investors and improved macro fundamentals, our  ability to weather these storms is relatively better.

Our focus in equity funds continues to be on bottom up stock picking, macro repercussion of these kind of events are one of the inputs in portfolio construction.

We are likely to be in a period of heightened volatility, investors should take advantage of it rather than getting swayed by it.
By Navneet Munot, CIO of SBI MF