Mumbai: The ‘Brexit’ vote by UK to leave the European Union would be unlikely to have much impact on India's economy, experts feel.
A sharp depreciation in pound value can unnerve markets significantly in the short term and can cause a correction in the local markets. However, this is unlikely to have a lasting impact on the Indian economy and markets.
Indian exports to the UK are equivalent to less than 0.5% of the GDP, so even a sharp slowdown in demand from the UK, which observers think is unlikely in any case, would have a very small impact on Indian growth.
Indian markets are outperforming global markets mainly because relative growth is much stronger, earnings have rebounded, etc.
However, the impact of UK leaving the Eurozone will be felt through the currency markets. The GBP could depreciate between 8 percent and 10 percent to the dollar. This could cause a risk-off sentiment in the markets. This could dominate local markets until the sentiment improves.
India has firepower to withstand British exit from EU: Finmin
India has the firepower to withstand Britain's likely exit from the European Union, will accelerate growth programmes to offset its impact, and does not expect its foreign trade to suffer, a senior finance ministry official said.
"India is prepared for all eventualities," Economic Affairs Secretary Shaktikanta Das said on Friday on the steps of the finance ministry after UK broadcasters called the outcome of Britain's EU referendum in favour of quitting the bloc.
India gold prices jump 6 percent to highest in nearly 3 years:
Gold prices in India jumped 6 percent on Friday to their highest level in nearly three years following gains in overseas markets and on a weaker rupee.
At 0457 GMT, the key gold contract for August delivery on the Multi Commodity Exchange was up 6 percent at 31,708 rupees per 10 grams, the highest level since Sept. 9, 2013.
Global gold prices jumped 6 percent on Friday after partial results in a UK referendum put Britain on the brink of leaving the European Union, boosting the appetite for safe-haven assets.
The Indian rupee was trading at 68.1350/68.1400 to the dollar at 0504 GMT after tumbling to as low 68.22 in early trade, its weakest since March 1.
RBI likely preventing rupee from falling past 68.20/dollar, traders say:
The Reserve Bank of India likely sold dollars around 68.20 rupee levels through state-owned banks to prevent the rupee from falling further, three traders said on Friday, adding that appeared to be the level the central bank was keen on defending.
The Indian rupee was trading at 68.1225/68.1300 to the dollar at 9.24 a.m. after tumbling to as low as 68.22 to the dollar, its weakest since March 1.
The currency had closed at 67.25/67.26 per dollar on Thursday.
The currency was plunging in line with Asian currencies after a referendum in Britain appeared to be leaning towards leaving the European Union.
India focusing on market dislocations from Brexit, Jayant Sinha says:
India is focusing on the market dislocations arising from a likely British referendum vote to leave the European Union, junior finance minister Jayant Sinha said on Friday, saying it was too early to assess the trade impact.
"There's going to be market dislocation and we are going to have to focus on that," Sinha told news channel ET Now in the first official comment on the UK plebiscite.
India's benchmark stock indexes opened down 3 percent. Listed companies with exposure to Britain suffered the heaviest losses with Tata Motors tanking nearly 10 percent.
India Inc says:
The country's strong macro-economic fundamentals will help it withstand the Brexit fallout, although companies having exposure to the UK need to realign their strategies to stave off the negative impact on their businesses, India Inc said today.
CII Director General Chandrajit Banerjee said the fundamentals of the Indian economy are strong and it would be able to withstand the short-term issues that Brexit may create.
The UK voted to leave the European Union after 43 years in a historic referendum that saw 52 per cent of votes in favour of 'Leave'.
"Since India has a huge corporate investment in the UK economy, Indian firms with manufacturing or other facilities in Britain will have to realign their business plans," Assocham Secretary General D S Rawat said.
"With the UK voting to leave the EU, Indian companies will re-engineer their European strategy. This should not be an issue. India will not be affected due to Brexit if we look at a mid to long term perspective," CII President Naushad Forbes said.
However, Principal Economist at India Ratings & Research Sunil Kumar Sinha said the Indian corporates having exposure to Europe/UK either through trade or if their production units are located there, would be adversely impacted.
Banerjee felt India's strong macro-economic environment and stable, predictable and transparent policy regime would make it an attractive destination for investors in such a volatile global scenario and thereby spur growth further.
Rawat observed that it's time India buffeted its domestic firewall by rolling out crucial reforms like Goods and Services Tax to remain the most credible destination for global funds.
On frenetic selling in early trade today, market benchmark Sensex nosedived by over 948 points to crack the crucial 27,000-mark, while Nifty broke below the 8,000-level after local media declared that Britain has voted to leave the European Union.
PHD Chamber of Commerce President Mahesh Gupta said the volatility in financial and currency markets is short lived as the Indian economy is resilient and sustainable on account of its strong macroeconomic fundamentals and well supported dynamic policy reforms.
"From India's perspective, Brexit will have both positive and negative impact. As Brexit will vitiate the already uneven and fragile global recovery, it will exert downward pressure on global commodity prices and India will benefit being a net commodity importer.
"However, with risk rising in the global financial market, foreign capital will flow out putting pressure on the rupee to depreciate and making Indian financial market volatile," Sinha said.
But Brexit negative for Indian IT:
Brexit is "negative" for the Indian IT industry in the short, and medium-term, former CEO and Managing Director of software major Infosys S Gopalakrishnan said today.
Stating that uncertainty is not good for industry in general, and currency movements are going to be unpredictable at this point of time, he said one does not know now whether this is going to trigger a cascading set of reactions.
"So, in the short term, this uncertainty is not good for industry and it will be negative for IT industry too because of the uncertainty," the former President of Confederation of Indian Industry told PTI.
"Having said that, may be in the medium-term, a lot of this would trigger changes in IT systems. That means some additional business for IT. In the short-term and probably in the medium term, this uncertainty is not going to be good for the IT industry," the Chairman of Axilor Ventures said.
Asked if the vote is going to be negative in the short and medium term for the Indian IT industry, the co-founder of Bangalore-headquartered Infosys said: "that is correct".
Responding to what strategy Indian IT industry needs to adopt now, Gopalakrishnan said: "Unfortunately, this is beyond the IT industry. This is the global economy. Since it’s the global economy, IT as a services industry has to wait for things to settle down"....