Brexit (Britain Exit) – Where to invest money in India now?

Brexit -Britain Exit-Where to invest money in IndiaBritain Exit – Where to invest money in India now?


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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Suresh
Britain Exit – Where to invest money in India now

Suresh KP

13 comments

  1. Great article. Keep going.
    I have Infosys, TCS,Wipro,TATA Motors. Your opinion on these pls.

  2. i disagree with the general opinion voiced by most tv analysts as well as Suresh here that u should avoid buying stocks having exposure to UK. This is tyoical trader mentality. While I am not surprised by the media folks saying this as 95% of the analysts u see on tv are meant for traders, i am surprised by Suresh;s views here. I think this is the best time to buy into such stocks if u are an investor with a long term horizon of 5 years or more (in my firm belief, this is the minimum u should have if u want to seriously invest in stocks, if not follow the trading advice dished out by the many tv channels at any time of the day). There have been umpteen situations where markets have given a knee-jerk reaction to local and/or global events, only to bounce back with a vengeance many times over what they fell. The same will be the case here.

    Take the case of JLR. It tanked 15% initially and ended up around 8% lower than its previous close. And for what? Are Brits or Europeans going to stop buying JLR cars because Britain is not part of the EU? Hardly likely. Agreed that JLR derives 24% of its volumes and sources 35-40% of its components from Europe. And post Brexit, import tariffs may make JLR’s vehicles more expensive than German luxury cars in Europe. JLR’s costs would also go up if it has to pay import duties on components sourced from the EU and adversely impact JLR volumes as well as margins. But seriously, do u really think the people who buy JLR card or for that matter German luxury cars would care for a few thousand pounds more for a car if they really wanted it? And that I think is the basic fallacy in this argument. And negotiations regarding trade between Britain and EU are yet to start and may only fructify 2 years down the line. By which time, I am sure the Tatas would surely have a back-up plan in place. So why worry about something which is only likely to happen 2 years down the line, today? Remember what happened to Hero Moto when it broke from its long standing partner Honda. It was as if the whole world has closed on Hero while what happened subsequently was exactly the opposite. And I won’t be surprised by a similar thing happening in TaMo. Ideally retail investors should go for the DVRs as they not only provide a higher dividend than the parent, but also the differential between the 2 is quite wide currently and will likely come down over the years.
    Now look at the bright side of things, The CV market in India is looking up and TaMo is the leader here. Once the monsoon passes as expected, the rural economy will get a boost and that’s where TaMo’s strengths lie.
    A similar case is being played out at Motherson Sumi. A while back, they were hammered due to the VW issue and for no fault of theirs, since they were in no way involved in any of the parts which were apparently falsified. And make no mistake about this. They haven’t gotten to the position they are in now by just doing what everybody else was. Instead of doing different things, they chose to do things differently. Apart from the VW group, they do have other global clients whom they can serve in addition to VW, unless VW itself closes down, which is unlikely. And recently they announced the merger of their profitable subsidiaries with themselves. The company will emerge stronger and will be able to pare a lot of its high cost debt, become much more efficient, and remove a lot of the duplication that exists in some of the subsidiary companies.
    So, I think it is an opportunity for long-term investors to get in, but lower price levels make you feel more comfortable from a risk reward ratio.

    1. Yey Dinesh, what I indicated here is avoid buying such stocks in short term. If you are long term investor, you need to forget about all these market fluctuations. Now once markets start falling 20% to 30%, it is an opportunity. See my last sentence on how to handle such market fluctuations in this article. To answer some of your points 1) JLR (Jaguar), I am not interested to comment as neither as it does not impact on Indian stock markets 2) Tata Motors is good company, but what if I can buy at lower levels during market correction? This is what I said to buy during corrections 3) Motherson Sumi, one stock many of our friends has lost huge money in this stock in the last couple of years. Its unique company in its business model, but one should not loose money by investing in such companies. Anyway, thanks for your comments.

  3. Brilliant article Suresh. I already own a few of these stocks like TCS, Hindalco etc. What do u suggest?

  4. It is a really great article…all the things regarding the brexit is discussed….keep up the great work…

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