Brexit rattles markets, pound stumbles 11%, Cameron resigns as Britain exits EU

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24 June 2016   

Britain's decision to opt out of the European Union-EU (Brexit) rattled Indian financial markets on Friday, shaving some over 1,000 points, or 4%, off Sensex, a key equities index, while pulling the rupee below the $68 mark. The British pound dropped 11% to its lowest level in over three decades as the market awoke to the shock of Brexit. The euro, seen to be vulnerable if Britain voted to leave the EU, was also down 3.2% against the US dollar, which also rose strongly against emerging market currencies. A stunning slide in sterling at 3.40am (London) saw the currency plummet below $1.40, and 20 minutes later, it had breached $1.35 to levels last seen in 1985. An hour later, the pound touched a new low at $1.3224. Following the poll results, British Prime Minister David Cameron announced his desire to resign from the post.

The BSE Sensex, which had closed on Thursday at 27,002, opened the next morning at 26,367. At noon, it had drifted sharply and was ruling at 26,002 points, down by 999 points, or 3.7%. At one point, it had lost nearly 1,050 points.

Each of the 30 stocks that go into the Sensex basket were in the red led by Tata Motors, which was down as much as 11.53% and Tata Steel, lower by 9.15%, due to their large presence in Europe in general and Britain in particular.

In the pre-open trades, the 30-scrip index was down as much as 634.74-points or 2.35%. An indication came from the SGX Nifty, which trades on the Singapore exchange and ahead of the opening bell in India, was down over 2.75%.

At the National Stock Exchange (NSE), where the 50-scrip Nifty had closed at 8,270 points, the opening bell was at 8,029. Thereafter, the index was ruling below the 8,000-points mark at 7,955 points, down 315 points, or 3.81%.

The rupee dived over 1.4% to 68.21 per US dollar, while the British pound -- that had rallied to nearly $1.5 in early trades -- fell sharply to its lowest level since 1985 at $1.35.

Both Finance Minister Arun Jaitley and Reserve Bank of India (RBI) Governor Dr Raghuram Rajan sought to calm the markets and assured there was no cause for panic as India's economic fundamentals remained strong and along with other macro indicators.

RBI's Rajan said investors need not panic over the rupee. "We are comfortable on foreign exchange reserves. We can use it when necessary," he added. "We also expect to see lesser swings in bond markets compared to peers."

Commenting on the Brexit, Arundhati Bhattacharya, Chairman of State Bank of India (SBI), the country's largest lender, said, "Uncertainty of any sort results in volatility and Brexit will be no exception. As risk aversion sets in, there would be a decline in financial markets and India would see this impact along with other nations. However as trade strategies are reworked there could be potential advantages in the form of better market access for India to EU and UK."

On Thursday, sensing that the chances of Britain remaining in the EU were higher, the investor mood had lifted the Sensex by 236.57 points or 0.88% while the wider 51-scrip Nifty edged up by 66.75 points or 0.81%.

This, despite foreign funds being net sellers of Indian equities on Thursday valued of Rs31.86 crore, as per data with the National Securities Depository Ltd (NSDL).

World reacts as Britain votes to leave EU
 

British PM Cameron, said he fought the referendum on the EU with "head and heart" and was proud of what he had done. "I formed a coalition, delivered a referendum in Scotland and gave the public a referendum on Europe. I have fought the referendum with head and heart. I always thought that one has to confront big decisions and not duck them," Cameron said as he announced his decision to step down as the Prime Minister.

International reactions poured in on Friday for the dramatic decision by British voters to leave the EU in a historic referendum.

"We respect the result. Now is the time for us to behave seriously and responsibly. (Prime Minister) David Cameron has his responsibilities for his country, we have our responsibilities for the future of the EU. You can see what is happening to sterling on the markets. I don't want the same thing to happen to the euro," European Parliament President Martin Schulz said early Friday morning after the results were announced.

Former First Minister and Scottish National party leader Alex Salmond said he believes Scotland must now stage a second independence referendum before the UKA’s exit from the EU is effected within the next two years.

Dutch Freedom Party leader Geert Wilders hailed the decision and said that it was the time for a referendum in the Netherlands.

"Hurrah for the British! Now it is our turn. Time for a Dutch referendum!" he tweeted

Marine Le Pen, the leader of France’s far-right Front National party, has welcomed the result. She said she also wants a similar referendum in France.

"From #Brexit to #Frexit: It's now time to import democracy to our country. The French must have the right to choose!" she leader tweeted.

Manfred Weber, leader of the largest group in the European Parliament, the EPP, said: "Exit negotiations should be concluded within 2 years at max. There cannot be any special treatment. Leave means leave."

German Foreign Minister Frank-Walter Steinmeier deemed it as a sad day for Britain and for the EU.

The head of Germany's Foreign Trade Association, Anton Boerner, said: "That is a catastrophic result for Britain and also for Europe and Germany, especially the German economy. It is disturbing that the oldest democracy in the world turns its back on us."

Gerard Araud, the French ambassador in Washington, tweeted: "Now to the other member states to save the EU from unravelling which excludes business as usual, especially in Brussels. Reform or die!"

The 'Leave' campaign won by 52% to 48% with England and Wales voting strongly for Brexit, while London, Scotland and Northern Ireland backed staying in the EU.

The referendum was held all across the country on Thursday. The turnout was 71.8% - with more than 30 million people voting.

Twitterati reaction on #Brexit