6/21/2016

Thisishow'Brexit'isgoingtohitourstocks,rupeeandtheeconomyTheEconomicTimes

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Thisishow'Brexit'isgoingtohitourstocks,rupeeandthe
economy
PostaComment

ByKshitijAnand,ECONOMICTIMES.COM|21Jun,2016,03.54PMIST

NEWDELHI:Thenextbigeventriskbeforeequityinvestorsacrosstheglobe,including
thoseofIndia,isthe'Brexit'referendum.

Editor'sPick

TheUnitedKingdomwillholdthereferendumonJune23todecidewhetherBritainshould
staywiththeEUornot.Someanalystssaythiswouldbethemostimportantglobalevent
thisyear.
A'Leave'mandatecanholdprofoundimplicationsforvariouseconomiesinEuropeandfor
countrieswithwhichEuropesharesdeepertraderelations.However,a'Remain'votewill
keepthingssteadyandboostriskonsentiment.
Althoughrecentpollsindicatedthatthewindwasshiftinginfavourofa'Remain'vote,it'sstill

1ofevery3PSUstocksbledinvestorsin
last10yrs
MahanagarGasIPOsails,subscribed1.08
times
Whyretailinvestorsusuallydontmake
moneyonDSt
4moneymakingideasbefore'Brexit'vote|
MktLIVE
Brexitvotecount:Whattowatchforasthe
nightunfolds

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toocloseacall.
FromIndia'spointofview,Brexitisimportantbecausebesidessharingtraderelations,EUis
India'slargestsingleexportmarket.Withapopulationofaroundhalfabillion,theEuropeaneconomyisworth$16trillion,whichis
equivalenttoonefourthofglobalGDP.
DatawiththeCommerceandIndustryMinistryshowsIndia'sbilateraltradewithBritainstoodat$14.02billionin201516,outofwhich
$8.83billionwasinexportsand$5.19wasinimports.Thetradebalancethuswasapositive$3.64billion.
ExportstotheUKpresentlyaccountfor0.7percentofAsiancountries'GDP.SomestudiesestimatedthataBrexitwouldreduceBritish
importsby25percentworldwidewithintwoyears.
OnlyafeweconomiesinAsiawouldseeanoticeableeffectongrowth.China'sexportstotheU.K.areequivalenttojust0.5percentof
ChineseGDP.LondonbasedCapitalEconomicssaysaBrexitwouldcauseatthemostaGDPdropof0.2percentacrossAsia.
NoriskanalysiscanpreciselyestimatetheexactconsequencesshouldtheBritishdecidetopartwayswiththeEU.Buttheimpactwill
surelybedeeperacrossfinancialmarkets,beitequities,currenciesorbonds.
http://economictimes.indiatimes.com/markets/stocks/news/thisishowbrexitisgoingtohitourstocksrupeeandtheeconomy/articleshow/52850988.cms?pr 1/3

6/21/2016

Thisishow'Brexit'isgoingtohitourstocks,rupeeandtheeconomyTheEconomicTimes

Currencies:Poundcantumble12%,Rupeetoweaken
Thehealthofaneconomydirectlyreflectsonthestateofitscurrency.ApossibleBrexitcouldbegravefortheBritisheconomy,whichis
estimatedtoshrink6percentinabout15years.
"Thecountry'sGDPcouldwelldeclineby3.6percentaftertwoyears,inflation(CPI)canbehigherby2.3percentthanthecurrentlevels,
unemploymentratecanincreaseby160basispoints,averagerealwagescancontractby2.8percent,housepricescandeflateby10per
centandpoundcantumbleby12percent,"IIFLsaidinareport.
Intheshortrun,itcouldtriggerflightofcapitalfromBritain,whichcouldstrengthenthedollarintheshortterm.Astrongdollarwouldpush
therupeetowards70level,expertssaid.
"Wearegoingtoseealotofvolatilityinthepoundaswellasfortheeuro,andpossiblythatwillcreategreaterdemandforsafehaven
currenciestheyenandthedollarmakingthemappreciateagainstthewiderbasket,"AditiNayar,SeniorEconomist,ICRA,saidinan
interviewwithETNow.
"Giventhat,theemergingmarketscurrencieswouldcomeundersomepressureandtherupeeisnotgoingtoescapethatvolatility,"she
said.
"Wehaveabroadrangefortherupeefortheyearbetween66.5and69.5levelstothedollar,"Nayarsaid.
TheBritishexitwillimpactexportstoEurope,whichwillgetaffectedalsoduetoadevaluationoftheeuroandthepound.
CompanieslikeTataMotors,TataSteel,HindalcoandahostofIndianpharmacompanieswillalsogetimpactedduetomajorcurrency
fluctuations.
Equitymarkets:
IndiaisnotdecoupledfromtherestoftheglobeandtherewillbecollateraldamageshouldaBrexitverdicttriggersaselloffinemerging
markets,whichIndiaispartof.Theeventwouldleadtoachangeinstrategyformostmoneymanagers,shiftingtheirpreferencefrom
equitytowardssafehavenssuchasgold.
TheintensityofthedamagebecauseofapossibleBrexitcouldbehigh,butitwillnotbepermanent.Mostanalystsexpectamaximumof
kneejerkreactioninthedomesticmarketafterwhichinvestorswillreturntothemarketoncethedustsettles.
"IfthereisaBrexit,riskofftradewillkickin,especiallybecauseofcurrencyvolatility.Ariskofftrademayleadtosomemoneygoingoutof
emergingmarkets,includingIndia,"saidSashiKrishnan,ChiefInvestmentOfficer,BirlaSunLifeInsurance.
Aweakerrupeecanfurthererodereturnsfortheforeigninvestors,makingthemtocashoutofthedomesticmarket.
"Iwouldthinkgoingintothevote,peoplearereducingtheirexposuretoemergingmarkets,butIthinkalotofthesefearswillsortofeven
outaftertheevent,"headded.
KrishnansaidanycorrectionbecauseofBrexitwillbeanopportunitytotakeexposureindomesticequities,especiallythecyclicalor
consumptionrelatedstocks.
Fundoutflowisarisk:
BrexitwillleadtocapitaloutflowsfromIndiatoacertainextent,saidexperts.WillthatentirelydamagetheIndiastory?No.
"ABrexitwillalsoimpactcapitalflowstoIndiaandourexportstoEuropewillgetaffectedduetoaweakereuroandpound.Indian
businesshouseshaveamaterialpresenceinbothUKandEurope,andtheywillseesubstantialimpactduetounavoidablecurrency
fluctuations,"saidNirdoshGaur,MD&CEO,Moneypalm.

http://economictimes.indiatimes.com/markets/stocks/news/thisishowbrexitisgoingtohitourstocksrupeeandtheeconomy/articleshow/52850988.cms?pr 2/3

6/21/2016

Thisishow'Brexit'isgoingtohitourstocks,rupeeandtheeconomyTheEconomicTimes

AkashPrakash,CEO&MD,AmansaCapitalsaidthebiggestworryfromaBrexitvotewouldbethatitcanopenarealcanofworms,
raisingaquestionmarkoverhoetheEuropeanUnionwillfunctioninitsnewavatar.
"IthinktherealworryonBrexitisnotsomuchabouttheimpactontheUK,whichisofcoursethere,butisitaboutthepossiblebeginning
ofdisintegrationofEurope,whichisamuchbiggerworry,"headded.
A'Leave'votewouldcomplicatemattersforregionalpolicymakersalreadywrestlingwiththeeurozone'seconomiccrisis."Theseconcerns
arenotlimitedtoretailplayersasnetredemptionsfromEuropeequityfundsYTDarenowevenlysplitbetweenretailandinstitutional
investors,"thereportsaid.
ThesecondweekofJunesawEPFRGlobaltrackedequityfundspostacollectiveoutflowof$3.6billionwhilebondfundsexperiencednet
redemptionsforthefirsttimequartertodate.Over$22billionflowedoutofthemoneymarketfunds,withthebulkgettingredeemedon
June15.
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http://economictimes.indiatimes.com/markets/stocks/news/thisishowbrexitisgoingtohitourstocksrupeeandtheeconomy/articleshow/52850988.cms?pr 3/3