Impact Of Brexit On Indian Economy

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Contributor Since 2016

Nikhil Khandelwal is the Principal Officer of IntrinsicOne Investment Advisory. Nikhil is SEBI Registered Investment Adviser.

He has extensive experience as an Analyst, Trader and Financial Consultant for Global Capital Markets (US, UK and Indian Stock Market)

He cleared the CFA Level-2 Examination conducted by CFA Institute. He is also a Certified Chartered Financial Analyst (ICFAI,India) and did his MBA from one of prestigious B-Schools of Mumbai University. He did his Bachelors of Engineering with Electronics and Telecomm specialisation. 

Specialities -  Value Investing, Growth Investing @ Fair Price, Long-Short Equity, Contrarian, Momentum Trading. 

All eyes are on 23rd June, 2016. "Brexit"

If you are allured by poll results regarding lesser probability of Brexit happening then think again.

Can you please google and check the statistical accuracy of such polls.

You will know exactly what we are suggesting. Be Careful.

On 23rd , Britain will decide whether it will "Stay" or "Leave" the European Union. The current Prime Minister of Britain David Cameron will hold the referendum to decide whether Britain should part ways with the EU or should remain a member nation of the EU. The global markets are quite rattled over "Brexit" issue as these are sensing the possibility the Britain might leave the EU.

Brexit is currently seen as the next big financial event post global economic meltdown which occurred in the year 2008. Several analysts are proposing different hypothetical situations around "Brexit". Many of them see this as another economic catastrophe while others view this as an event giving a mild shock to the world economy. Many are worried over Brexit, and Indian markets are one of them.

It is feared that the moment Britain leave the European Union, the markets will take a deep plunge as Indian exports will get affected leaving a negative impact on Indian Rupee. The UK is the prime market for India for trade in Europe and the UK has been the gateway for India to reach out for other nations in Europe for trade and business purposes. It is anticipated that after Brexit, India will find it quite difficult to penetrate the other nations in the EU.

Brexit will have pros and cons for Britain, the EU and the global markets. It is true that currency markets will get hit by this Brexit event. Britain is quite a strong member nation of the EU and leaving the EU will certainly weaken the EU, both politically and economically.

However, it will be difficult for Britain too once it leaves the EU as the issue of euro-pound will arise. It also may happen that Scotland may think of switching to EU after Brexit and leave the UK. Also, if Britain votes to leave, it will lose the benefit of tariff-free trade in goods and services to the 28 member states. It is also feared that Brexit will result in huge job losses as Britain has benefitted from skilled immigrants. The Euro will tumble down drastically. The UK's membership to the EU has been prominent in inviting investing companies especially from India, China and Japan. Several investors round the globe prefer the UK as a good investment decision because of its favorable legal system, liquid capital and equity markets and the very important, ease of doing business.

Brexit and India

The UK receives highest FDI from India, thus making India the third largest source of FDI to the UK as there has been a constant increase in the capital inflows in the UK from India. There has been mixed reactions from various experts on impact of Brexit on India. Indian Rupee may see volatility just like Euro, but unlike Euro, the impact won't be much for long.

However in India, many see this as a good opportunity. The impact of Brexit on India is constantly being referred to as "Knee-jerk Reaction" and that too for short- term. And it is expected that this won't be affecting for medium or long-term. Indian companies especially IT and pharma companies operating in Britain and other European nations will witness some slowdown because of Brexit. But it is also expected that India will have strong ties of trade post -Brexit.

Britain may benefit from its freedom to negotiate Free Trade Agreements and other trade agreements to other nations on its own terms without stringent rules and regulations.

The UK eyes to attract FDI from emerging markets and India will benefit from lower regulations and cost. Some fear that the Brexit event is a bigger risk than the recent jump in Brent crude oil price while others are behaving skeptically and predicting its short-term and long-term impact.

The capital inflows, currency markets and the economies are surely on the verge of some hit. But in India, experts say that the impact will be for short-term, it won't be affecting for medium or long-term and India, post-Brexit, will develop much stronger trade relations with Britain.

Though, the referendum is on 23rd June, it is too early to comment upon anything as the result is completely unknown.

Brexit is Unknown Unknown. Let's wait & watch from sideways rather than trying to predict something not predictable.

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