Brexit – Reasons and the Impact on Home Ground

Over the past week, there was a fresh probe into the opinions of financial experts every two hours on what they expected the impact of this scenario would be. The thought process in general has been ranging somewhere between livid and negative for the Indian Markets. Looking at it from the Indian perspective, the Indian stock market is not supposed to be affected as much as other economies. There is a definite ripple effect the country is going to face. We have already seen the ripples of the first wave, starting from the drop of Indian rupee value below 68 mark.

But why did the Brexit become so important to the population of Britain, now? By the feel of it, a lot of people say that Brexit is not because or for the “Economy” per se, but that it is the Xenophobia amongst the people of UK which made them such strong supporters to the idea of exiting the Union.

Over the years, Britain has been a hub for immigration and the locals haven’t exactly been standing in the receiving line. Things like “there are a fifth of people in this country now who hate us and want to kill us” are an everyday dialogue in Britain.

Let’s look at the different areas where the Brexit will impact the economy at home turf:

  1. IT industry: India’s five major IT companies have a direct revenue exposure in the European markets. A Brexit may mean drastic drop in their revenue by 4-5%, which will impact the country’s growth quotient.
  1. Major Indian players: Other than the top Indian IT companies, companies like BhartiAirtel, HCL Technologies, Emcure Pharma, Apollo Tyres and Wockhardt also have a major set up in EU. Now that Britain will turn inside for a minimum two years to initiate its independent growth, these giants are not going to enjoy the economic numbers they have been enjoying so far. The figures are bound to be stressed for them. TATA Motors (Land Rover operations in Britain) had recently closed a company- wide employee strike in Europe, after resolution EU government which will be void for the offices in Britain. This might result in thousands of employees losing their jobs.
  1. Exit of Other Players: Analysts are concerned that now the Brexit has happened, other countries might also feel the need to leave the Unionwhich will impact the whole world in trade and investments. The isolation streak this exit might start will turn out to be catastrophic, as we may come across another 2008 break-down.
  1. This is Not another Lehman Brothers event: The markets have felt a 3% downturn today because of the Brexit today, which in itself is very bad for the market morale. However, this is not as bad as the Lehman Brothers downfall, when the markets had faced a 10% low.
  1. Global Volatility: Brexit is going to impact the Volatility in the global markets and Indiawill feel the heat, as the confusion due to fear and anxiety spreads across the globe.
  1. Low FDI: UK is the third largest investor in India and now that UK itself is going to go through the phase of self- sustenance, India is going to face a major FDI crunch.
  1. Nothing will be the same again: In view of the Brexit, a lot of India-EU trade deals will be void considering the terms are bound to be altered with the Union’s internal tussles, which are just beginning. Considering that UKis definitely going to face a recession, trades are to impacted even further.

Overall, it is being considered that this decision is going to keep the global markets low for the next 3-4 months, only after which a hope of recovery is possible. Seeing this trend the financial gurus are of the view that right now is the best time to get in the middle and buy as much as your appetite can handle. However, a lot of shareholders are feeling anaemic at the moment.

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