Finally Great Britain voters decided to exit from the European Union. Friday, Stock markets lost more than 1,000 points at one point of time and recovered by 400 points ending a loss of 600 points. Stock markets across the world has crashed with this decision. What is the impact of Brexit on the global economy? How does it impact India? How does it impact Indian stock markets and our investments? Where to invest money india now in this situation?
How European Union formed?
After the Second World War, a new movement was launched in Europe regarding the unity of the European countries. With the passage of time, this European Union emerged as an economic and political union between the 28 countries of Europe. Each of the countries within the union is independent, but they agree to trade with each other under the agreements made between the nations. The European Union operates as a single market, which allows free trade and free movement of goods, capital, services and people between the member states.
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What is Brexit and Bremain?
Led by a series of controversies and disputes, Britain had a bumpy ride within the European Union.
- The Prime Minister of UK David Cameron promised to hold an in-out referendum if he wins the general election of 2015. He made a series of negotiations with the EU and finally decided that the referendum would be held on June 23.
- A referendum is basically a vote in which every eligible citizen can participate in support or against a matter. And, now the citizens of the UK had to vote for BREMAIN or BREXIT.
- Brexit is made up of two words- Britain and Exit. It refers to the situation in which Britain will withdraw it from the European Union (EU). Bremain is a situation in which UK remains the member of the EU.
- The people who are in favor of BREXIT would term the day as ‘Independence Day’. It would be a historic day when the United Kingdom is free from the shackles of the Euro Zone and could work at its full potential with unfettered access to the 80% of the world not covered by the single market. After the Brexit, the UK could enter into the trade deals with the rest of the world. The supporters of Brexit argue that it is a life time opportunity for Britain to restore its sovereignty.
What is the outcome of the Brexit referendum?
The people of Britain have voted for a British Exit from EU in a momentous referendum that took place on 23rd of June. This result has sent a series of shock waves to the global economy. The pound has fallen to the levels seen since 1985. The Prime Minister of Britain, David Cameron resigned from his post. He wanted Britain to be a part of the EU.
What is the impact of Brexit in India?
Brexit is a crucial global event that is taking place this year. It will have a wide impact on various economies and India is no exception to it.
- Trade pacts with UK to be renegotiated. Any Indian company exporting to the UK would take a big hit.
- Foreign Direct Investment (FDI) flows from the UK would be stalled temporarily. UK is the 3rd largest source of FDI in India, hence it would see huge impact.
- There would be a tremendous sell off in the emerging economies and it is expected that after Brexit, the wise money managers would change their strategies and switch over to safe havens like gold from equity.
- The fall in stock markets would be more of a reaction to the global sentiments and does not affect directed to a large extent.
- The capital market regulators and the central bank are keeping a close watch on the market to reduce the volatility in the market.
- It is estimated that the stocks in the UK would fall around 10-20%, while those in the US would take a hit of around 7-8% and foreign investors would try to hedge off their losses by selling off in emerging markets.
- Some of the Indian companies and investors have huge exposure in the European Zone; they will be affected to a large extent. Now, they will have to deal separately with UK and EU.
- Following the Brexit, the rupee could depreciate to the Rs.68 per US dollar level.
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What is the impact on the international stock market?
- With this Brexit, there is elevated risk of global recession.
- Short term fall in currencies and stock markets are expected.
- All the international stock markets witnessed a free-fall after UK voted for the EXIT from the European Zone. The decision had a significant downfall impact on all the major economies of the world. The investors rushed to the safe zone of investments like Government debt, Japanese Yen and gold. The Brexit may even prevent the Federal Reserve from hiking its interest rates as were planned this year.
- The chief European stock markets like Germany, France, Italy, and Spain got a hammering of more than 8-9% with banking sector shares taking a majorly hit. The British pound collapsed to nearly 18 US cents making it a big fall in the living memories. The currency has touched the lowest levels since 1985.
Where should you invest in India now?
Here are some of the tips on how you should handle your investments now.
- You should avoid stocks which has the largest exposure to the UK. Tata motors, Tatat Steel, Motherson Sumi, Hindalco, Cox and Kings, Aurobindo Pharma are some of the stocks that one should avoid for short term.
- In the short term, Technology companies which have a larger flow of IT projects from the UK would get slow down. There could be delays in getting the orders from the UK. Technology stocks like TCS, Infy, Wipro, Techmahindra which has significant revenues from UK should be avoided for fresh entry in the short term now.
- We could expect markets to further fall in coming days. During market corrections, one can invest in top stocks which are fundamentally strong.
- One can invest in gold mutual funds or gold ETF’s now. Due to pressure on equity markets, investors would pump more money in gold and related gold instruments. In the short term to medium term, gold looks attractive.
- One should continue to invest in SIP in Mutual Funds which are best way to handle these market turbulances.
Conclusion: Investors need to keep a close eye on their investments in coming days. If you have invested in any companies that have direct or indirect exposure, try to keep a close watch. If you have invested in global / international mutual funds that have exposure to the UK, you would see fall in returns in the coming days. Keep an eye on such investments. Wait for my article tomorrow to see some of the top mutual funds to invest post Brexit.
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Britain Exit – Where to invest money in India now
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Will Sail get boosted because of fall in Hindalco and Tata Steel? Also will our Public sector banks take a hit on this. (As of now even after Brexit news All PSB’s showing huge resistance. Please suggest sir.
Tata Global Beverages .. It also exports to UK ..
will it be affected ..and what are its domestic prospects
Thanks for the article, how do you view oil related companies like ongc, reliance etc in view of this event?
Thanks for your Brexit article. We are awating for your post article with suggestion of stocks/funds to be considered after Brexit.
S. Ravi Chandiran