IMPACT OF BREXIT IN INDIAN
INDUSTRIES AND INDIAN
ECONOMY
INTRODUCTION
The people of Britain voted for a British exit,
or Brexit , from the EU in a
historicreferendumonThursday June 23.
The outcome prompted jubilant celebrations
among Eurosceptics around the the
Continent and sent shockwaves through the
global economy.
After the declaration of the result, the
pound fell to its lowest level since 1985
andDavid Cameron resigned as Prime
Minister.
OBJECTIVE
To analyze how the Brexit have affected
Indian economy and Indian Market. How
Brexit makes changes in Indian economy.
FINDINGS
IMPACT ON INDIAS ECONOMY
GROSS DOMESTIC PRODUCT
EXPORTS
FOREIGN DIRECT INVESTMENTS(FDI)
INFLATION TO REMAIN RANGE BOUND
IMPACT ON INDIAN BUSINESS
AUTO COMPONENTS
INFORMATION TECHNOLOGY
FINANCIAL SERVICES
METALS
Impact on Indias economy
The announcement of the Brexit referendum
drew an immediate reaction from the
stockmarkets and currencies world over. India
was no exception from this contagion effect. The
Sensex tanked by 450 points (from the opening
value) on June 24, 2016 falling below the 26000
mark and the Rupeevalue crossed 68 for a US
Dollar. Nonetheless, both the stock market and
the Rupee were quick to recoverand find a
stable ground. Both the Government and
Reserve Bank of India have been on a tight vigil.
GROSS DOMESTIC
PRODUCT
Most of the estimates indicate India holding on to its
growth path even in the post Brexit scenario. This will be
backed by a host of favourable conditions on the
domestic front. The performance of the agriculture sector
is expected to improve in the current fiscal year. The
prediction for monsoons is favourable this year and rains
are expected to pick up over the next two months (JulyAugust 2016). Further, the Government has awarded the
Seventh Pay Commission Award and this will give impetus
to the domestic demand. The consumer durables goods
segment, the auto-sector especially the passenger two
wheeler segment and housing & allied sectors are likely
to benefit from this Pay Commission decision.
EXPORTS
Indias exports to the UK have been around 3%
of our total exports and exports to the
European Union arearound 17% of total
exports. Our exports to both UK and Europe
have been on a downtrend in the pasttwo
years on account of subdued demand led by a
frail and scattered recovery in the region. Post
Brexitthere is a heightened chance of this
trend being amplified over the near term given
the possibility ofdisturbances in currencies
and UK facing a further slowdown in growth.
FOREIGN DIRECT INVESTMENTS
(FDI)
UKs
decision to leave EU is expected to impact the confidence level of
the business and the investorcommunity and there might be a
temporary arrest in outbound investments from India to the UK until
more clarity is obtained on the working framework between the EU and
[Link], the Government has considerably liberalised the FDI
regime in the country and there has beenan increase in FDI inflows
over the last two years. This trend is expected to continue. With the
slew ofmeasures announced in June 2016, India has opened up almost
all sectors for foreign investors barring avery small negative list. India
has once again strengthened its position on the investment radar and
thegrowth prospects in the country remain strong.
INFLATION TO REMAIN RANGE BOUND
Oil and commodity prices have been subdued
and there is no intermittentrisks at present
that will makethe prices shoot. Global
growth remains muted and an upward
pressure on that account is suppressed
fornow. On the domestic front, good
monsoons have been as predicted. Prices of
food articles are likely toremain manageable.
IMPACT ON INDIAN BUSINESS
UK has been a valued economic partner for
India and the decision to leave the
European Union hascreated some amount
of ambiguity for the Indian businesses.
AUTO COMPONENTS
India is a major supplier of auto components to
the EU region. The region accounts for about
36% ofIndias total auto component exports,
while the share of UK is about 5%. The UK
Passenger Vehiclemarket is highly export
oriented and the segment has close linkages
with the EU automotive market. Theanticipated
slowdown in the UK and the EU region will have
a dampening effect on the sector. Also,
thedepreciating Pound will impact the revenue
stream companies of over the near term.
INFORMATION TECHNOLOGY
India is one of the largest exporters of ITenabled services and the sector has
significant exposure to theEuropean market
especially the UK. UK accounts for about 17%
of Indias total IT exports. Indias ITexports
to other European countries is at about 11%.
The IT companies thus are expected to face
the heatin light of the Brexit. Given the risk
of further moderation in growth in the UK and
EU, there is anincreased probability that the
companies lower their IT budgets (a
discretionary spend). This would havean
impact on the domestic software
[Link], the depreciation of
Pound does not augur well for the sector
and can negatively impact thegrowth in the
sector.
FINANCIAL SERVICES
There are currently bond issuances planned of range
USD100-150m in USD and INR. Brexit is making itvery
hard for UK and other markets (like Singapore, Paris
and Frankfurt as green bond investors aremainly EU)
are being looked. UKs credit rating has been cut, and
given most buyers of the bonds arefrom the EU there
is nervousness around these bond issuances. This is
important for India as it would bedifficult to imagine
financing Indias huge infrastructure appetite through
debt finance in London asaggressively as currently
planned. Again, this would depend on what Brexit
scenario that plays out.
METALS
With the global recovery remaining frail and
an evident moderation in China, the steel
and aluminiumsectors are already facing
the issue of overcapacity. Demand in the EU
has been subdued and this
latestdevelopment is expected to further
dampen demand. This might lead to a
greater weakening of metalprices giving
rise to earning pressures for companies.
CONCLUSION
The Brexit referendum has raised a healthy, albeit
sometimes exaggerated, debate. Its result will
provide the government with a mandate to act
upon the will of the people. The referendum is
bound to have long term political and economic
implications for India. Euroscepticism is on the rise
and other member states may follow suit with
their own referendums demanding more powers
for national parliaments from Brussels. Whatever
be the outcome, certain serious questions are
likely to be raised about the very project of
European integration.
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