BREXIT and It’s Impact on Indian Economy

Compiled by Zulfiqar Sheth

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Brexit is the term coined for Britain’s referendum to exit the European union. The referendum was done on 23rd June 2016 and 51.9% Britishers voted to leave the European Union.

Impact on Indian Economy 

1) Export : India’s exports to EU and Britain stood at USD 35.35 billion and USD 9.35 billion in 2015-16, respectively. Currency volatility post Britain’s decision to exit from the EU may put pressure on India’s exports in the immediate future as both British Pound and Euro will depreciate, giving greater competitiveness to their products, exporters’ body Federation of Indian Export Organisations (FIEO)said. Indian pharma industry which has more exposure towards Europe, will also be affected.

2) Currency: Brexit affects the rupee through both trade and the financial channels. The UK and European Union account for 23.7% of the rupee’s effective exchange rate, according to Nomura Research calculations. The UK’s exit could lead to a prolonged period of risk aversion in the equity markets which could spark foreign portfolio investor outflows and add to the rupee’s weakness.

3) Capital flow : “If Europe goes into recession, Japan will follow suit and that will slow down growth in the US. And if that happens, it will trigger a huge global risk-off trade and FII selling, which in turn will affect India as well” Ambit Investment Advisory CEO Andrew Holland said to Business Line. Yogesh Radke, head of quantitative research at Edelweiss Securities Ltd, says that FII net long positions in the index futures market amounted to Rs.13,600 crore on 10 June, the highest since March 2015. But by Thursday, these had been trimmed to Rs.7,000 crore. Some of this could be the impact of the so-called Rexit (the decision of Rajan to step down from the central bank). With Brexit becoming a reality in a week’s time, it is becoming one too many an exit for investors.

4) Commodities :The recovery in commodity prices in recent months has hit a bump with Brexit. Since 1 January, the Bloomberg Commodity Index was up by 13.4% as of 23 June, with Brent crude up by 37%, S&P GSCI Agriculture Index up by 14%, and the Bloomberg Industrial Metals Index up by 9.5%. On 24 June, these were down by varying degrees, with crude oil suffering a 5.2% decline while the Bloomberg Commodity Index was down by 1.4% at the time of writing.The immediate impact of Brexit has seen the US dollar appreciate and this usually sees commodities with strong links to financial markets weaken. Since money gravitates towards the appreciating dollar, commodities take a back seat.

Links (compiled from)
1)http://www.livemint.com/…/Brexits-impact-on-India-when-elep…
2)http://capitalmind.in/2016/06/brexit-need-know-impact-india/
3)http://www.livemint.com/…/Early-Brexit-vote-results-shake-u…
4)http://indianexpress.com/…/post-brexit-currency-volatility…/
5)http://www.thehindubusinessline.com/…/br…/article8714878.ece

 

Brexit will affect Indian Business specially Export led Industries. Aligarh lock industry will suffer. Dainik Jagran 25 June 2016

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