Indias World

Brexit
and
its consequences

What does Brexit mean?

It is a word that has become used as a shorthand way
of saying the UK leaving the EU merging the words
Britain and exit to get Brexit, in a same way as a
Greek exit from the EU was dubbed Grexit in the past.

What is the European Union?

The European Union often known as the EU is an
economic and political partnership involving 28
European countries. It began after World War Two to
foster economic co-operation, with the idea that
countries which trade together are more likely to
avoid going to war with each other. It has since grown
to become a single market allowing goods and
people to move around, basically as if the member
states were one country. It has its own currency, the
euro, which is used by 19 of the member countries, its
own parliament and it now sets rules in a wide range
of areas including on the environment, transport,
consumer rights and even things like mobile phone

What is a referendum?
A referendum is basically a vote in which everyone of
voting age can take part, normally giving a Yes or
No answer to a question. Whichever side gets more
than half of all votes cast is considered to have won.

Why does UK want to leave the EU?

Many in the United Kingdom are of the opinion that
the EU has transformed a lot over the years. They
think that since several countries have joined the
union, the EUs hold over everyday aspects of these
countries has increased. Many think that Britain is
better off without the EU as it is being constrained by
it. Some of the constraints involve imposing many
rules on Britains business and shelling out billions of
pounds in the form of EU fees without much gain in
return.

Why does UK want to leave the EU?

Many in the United Kingdom are of the opinion that
the EU has transformed a lot over the years. They
think that since several countries have joined the
union, the EUs hold over everyday aspects of these
countries has increased. Many think that Britain is
better off without the EU as it is being constrained by
it. Some of the constraints involve imposing many
rules on Britains business and shelling out billions of
pounds in the form of EU fees without much gain in
return.

Brexit impact on India

limited, some sectors
could face hit

Macroeconomic impact on India

The channels through which global shocks get
transmitted to India include trade, credit, investments
and capital flows.
Given the uncertainty with the Brexit process, it
should not be merely viewed as an event but as a
process that will gradually unfold -- with intermittent
mini-frights thrown in -- as negotiations proceed. We
have already seen how capital flows affect the stock
and
currency
markets.
So
how
are
these
developments likely to impact the Indian economy in
fiscal 2017 and the corporate sector in the medium
term? We take a look:

Macroeconomic impact on India

Dont presage big change in GDP growth this
fiscal 2017
No significant downside to exports
Peer
currencies
key
to
Indias
trade
competitiveness
Interest rates could fall more

Impact on Indian Companies

Demand weakness on account of potential
slowdown in the EU and the UK;
Volatility in commodity prices; currency impact on
account of the potential depreciation of the rupee,
euro and the pound;
Translation losses for companies with significant
operations in the UK and the EU; and,
Balance sheet impact on account of exposure to
unhedged overseas borrowings.

Impact on Indian Companies

UK has always acted as a gate pass for Indian
companies to access the European companies, its
more because of the access to financial markets in
London and ease of doing business with Europe,
from UK. Why will anyone want to set up office in
Europe and learn the local language to get access
to the markets, when the same can be done sitting
in London?
India has positive trade surplus of $3.64 billion in
terms of bilateral trade with Britain. The total trade
stood at $14.02 billion in FY16, out of which $8.83
billion was in exports and $5.19 was in imports.

Impact on Indian Companies

For the month of April 2016 the exports to Britain
stood at 17.66%(USA 17.80%) of the total exports.
In terms of imports, India imports only 1.45% of its
net imports from UK.
If we look at exports from India to UK, the major
exports are textiles and clothing, followed by
machinery and auto ancillaries. Indias major
exports in terms of pharma are US, UK followed by
Europe.

Impact on Indian Companies

Impact on Indian Companies

How we see the implications:

Auto, IT, textiles, pharma, leather & metals are the
most vulnerable sectors
Compliance, administration costs to rise for
companies
A quarter of auto parts exports are to Europe
Price volatility, demand slump to dent metal
companies
Garment exporters in the eye of the storm
Double whammy for IT: fall in discretionary
spending, rise in administrative costs
Pharma largely unaffected

Indian Firms to look out for on the

event of Brexit
Company

Impact of Brexit

Tata Steel

Has turnover more than GBP 2 billion

from UK Steel Plants. Has 12 production
plants spread across UK.

Tata Motors (Jaguar &Land

Rover)

JaguarandlandRoverareUKbasedand
areUKslargestautomotive
manufacturers

Motherson Sumi

Have major Automotive Clients in Europe

and derives more than half of its income
from Europe

Kitex Garments

Kitex Garments client Mothercare derives

20% of revenue from UK

Tata Consultancy Services

For FY16, its Europe operation grew by

12.9% and UK by 8.23%. Europe and UK
together are major contributors to its
revenue.

Bharat Forge

Caters European automotive clients, Has

3 plants in Germany and 1 in UK

Indian Firms to look out for on the

event of Brexit
Tech Mahindra

Has Banking and Financial Clients

from UK, and acquired UK based firm
Fintech

Bharat Airtel

Has been rated by Grant Thornton as

fastest growing Indian company in UK

Marksans Pharma

UK and Europe market account for

60% of their revenue.

Emcure Pharma

Has acquired UK based Tillomed

Laboratories and still expanding