It appears at this point of time that BrExit is really happening. As the effects of the unexpected result unwinds, the debate now is what will be the effect of the BrExit on India in general and Indian stock markets and Indian Economy in particular.
Before we start discussing the impact, we need to first congratulate the British public for perhaps what can be their first “Independence Day Feeling”. We in India and even US have an experience of an “Independence” but Britain perhaps did not have one and this occasion has given them a new experience. Let them enjoy.
As regards the impact of the result, there is a reasonable expectation that there will be a new election in England and a new Government as well. There will be lot of changes happening in England and the rest of EU. The exchange rates will readjust with US $ becoming stronger as well as Japanese yen. The EU currencies and the British Pound may become weaker. Those companies who have a trade surplus in EU area and have not hedged their exchange risks will be adversely affected. The IT Companies of India which have a huge exposure to the EU market need to check if they have been holding any open positions and re assess the impact.
The next quarter announcements of financial performance of these companies will indicate that they may have to revise their guidance mostly downwards.
The stock markets in the next one month will be down by atleast 5% from current levels.
However, in the long run, the business in EU will remain whether the contracts are decided by a new leader or by the old leader. Hence the overall business opportunities will remain. Probably the IT companies will gain new business since what they did so far for EU will have to be re-done with EU-UK and UK as two different entities. It will be like the Y2K moment where any change will lead to re-work of software and additional business for IT service providers.
It is now open to the Indian IT companies to quickly make a Business impact analysis and put together a response team that can immediately suggest revised versions for all they did in the last few years as software solution to Banks and other financial institutions as well as Government institutions and review what needs to be done now.
Then BrExit may actually benefit India.
I think that the days are interesting and innovators will make a kill. I am sure India has many of these innovators and we can look for an overall benefit to India being carved out. This will ofcourse be a challenge to the Government also and it has to come up with its own strategies to take advantage of the situation and act with a nimble foot.
Let’s watch and enjoy..
Naavi
P.S: If EU economy weakens by breaking into parts, the benefit will be for US and probably for economies emerging into the top of the heap and that includes India.
