What Brexit could mean for India
Markets
bracing for the Monday of the week of "Brexit", when Britain possibly
exits from the European Union, will now, following the BSE Sensex fall of 400
points last week provoked by this possibility, now have to contend with the
shock news of RBI Governor Raghuram Rajan's Saturday decision to step down when
his term ends in September.
Rajan's
bombshell, coming just ahead of the Brexit vote on June 23, could trigger
volatility in the stock bond and currency markets.
In the
letter to his colleagues on Saturday announcing that he was not seeking a
second term and will return to academia when his tenure ends in September,
Rajan made reference to the upcoming referendum in Britain.
"Colleagues,
we have worked with the government over the last three years to create a
platform of macroeconomic and institutional stability. I am sure the work we
have done will enable us to ride out imminent sources of market volatility like
the threat of Brexit," he said.
But
the biggest risk to the key equity indices stems from Britain's possible exit
from the EU. There might be far-reaching effects on global stock markets, as
well as the international currencies, if Brexit materialises.
Besides,
domestic investors will be concerned about the direct negative impact that some
of the India-based companies and sectors that have investments and exposure to
Britain will suffer.
The possible
British exit will also lead to greater investments into less risky assets like
gold and increase the overall outflows from the domestic equity markets.
"It
is expected that the market would remain a little volatile due to the global
events. Brexit is expected to heighten global volatility, thereby impacting
capital flows at home," D.K. Aggarwal, Chairman and Managing Director, SMC
Investments and Advisors, told IANS.
Minister
of State for Finance Jayant Sinha has said the government is assessing the
possible fallouts of Brexit.
Both
Brexit and Rajan's decision not to seek a second term might flare up volatility
in the Indian equity markets in the upcoming week.
Investors
will also be concerned over an initial deficit in monsoon rains, fluctuations
in rupee value and food prices.
According
to market observers, come Monday, June 20, a dour mood is expected to engulf
investors.
"The
RBI Governor's exit news could prompt investors to recheck their bullish
convictions," Anand James, Chief Market Strategist at Geojit BNP Paribas
Financial Services, told IANS.
But
the biggest risk to the key equity indices stems from the possible exit of
Britain from the EU, with the decision subject to a referendum which will be
conducted on June 23.
"India
invests more in the UK than in the rest of Europe combined, emerging as the
UK's third largest FDI investor. Access to European markets is therefore a key
driver for Indian companies coming to the UK," said Chandrajit Banerjee,
director general of Confederation of Indian Industry (CII).
"Anything
that lessens this attractiveness may have a bearing on future investment
decisions. It is important also to ensure continued border-free access to the
rest of Europe for the many hundreds of existing Indian firms that have base in
the UK," he added.
Britain
ranks 12th in terms of India's bilateral trade with individual countries. It is
also among just seven in 25 top countries with which India enjoys a trade
surplus.
As per
data with the Commerce and Industry Ministry, India's bilateral trade with
Britain was worth $14.02 billion in 2015-16, out of which $8.83 billion was in
exports and $5.19 was in imports. The trade balance thus was a positive $3,64
billion.
This
apart, the country brief of India's Ministry of External Affairs says Britain
is also the third largest investor in India after Mauritius and Singapore, with
a cumulative inward flow of $22.56 billion between April 2000 and September
2015.
Likewise,
India is also the third largest investor in Britain. Last year alone the value
was estimated at 1.9 billion pounds (around $2.75 billion). "UK attracts
more Indian investments than the rest of the EU altogether," says the
brief.
A.
Didar Singh, secretary general, of industry chamber Ficci has said: "We
firmly believe that leaving the EU would create considerable uncertainty for
Indian businesses engaged with UK and would possibly have an adverse impact on
investment and movement of professionals to the UK."
Also,
if Britain does leave the EU, it could lead to volatility in the pound, which
would increase the risks for Indian businesses.
Disclaimer: Information, facts or opinions expressed in this
news article are presented as sourced from IANS and do not reflect views of ML
and hence ML is not responsible or liable for the same. As a source and news
provider, IANS is responsible for accuracy, completeness, suitability and
validity of any information in this article.
