India and the Brexit
With financial and political ripple continues to shake the markets, Brexit continues to instigate debate among financial pundits on the future of global markets, especially the world’s emerging ones. Will the Brexit ripple hit emerging markets such as India’s? What impacts will it leave behind? Once part of the British Empire, India continues to enjoy healthy economic, trade and cultural relations with the UK.
Beginning with the massive fallout of the British pound, the currency saw an 8% decline as compared to the Indian rupees. This makes it less expensive for Indian students to study or work in the UK. The decline in the currency also means cheaper real estate options, especially for Indian citizens and Indian companies. With Brexit, London might extend the current trade relationship with New Delhi. Notably, Britain and India have not been able to reach on a free trade agreement, which both the countries can re-negotiate now. The UK would aim to strengthen trade relations with, emerging markets, especially India’s.
With an emerging market such as India’s, London would want to further strengthen its economic engine. While financial and political uncertainty clouds the future of EU, India’s emerging markets are likely to be the next destination for British companies to invest. However, they shall be cautious with the initial negative impact on the markets and would rather hope for a more stable market.
Security experts predict tighter immigration laws which could restrict movement of skilled labour in the country. Hence, after separating from the EU, the UK could lose a major portion of the skilled labour coming from the Europe, thus increasing the demands of highly skilled labour. This could be an opportunity for India, especially with India being Asia’s second largest hub of skilled labour.
It is also important to note that, the US Federal Reserve along with many European Banks are likely to increase their interest rates in an effort to curb Brexit’s effect on economic growth. This could further reinforce foreign investment to India because of higher interest rates. On the downside, many of the prominent companies operating in the UK such as Tata, which employ over 100,000 workers in the UK could suffer losses.
Now, referring in direct relation to the increased tariffs for their exports, if Britain continues to strengthen the new regulation and emigration policies, these companies will then be forced to review their massive operations in the UK whereas, some may experience closure of their operations. Speaking of today, India’s markets continue to show resilience towards Brexit.
India’s market resilient response
On Brexit, the Sensex opened quite low before hitting 1,091 points. The day ended with Sensex hitting at 605 points or creating a deficit of 2.24%.
The market initially reacted negatively towards Rexit (RBI governor Raghuram Rajan refusing a second term), but markets were relatively positive to Brexit. Since then, the currency continues to swing, with a few high and low, as the rupee lost ended the week with 89 paisa against the US dollar.
Irrespective of the referendum, Indian markets took a relative swing as the opinion polls showed Britain’s choice to stick with the EU. Undoubtedly, Britain’s exit from the EU came more shocking for the European markets than the Asian markets.
Indeed, Brexit has opened up a Pandora’s box. Hitting the global economy with an unproductive result, member nations opposing European membership have begun their own referendum procedures, leaving an area of uncertainty in the markets while creating an atmosphere of risk, especially for investment firms.
The continuous effort by the government, to strengthen GDP along with recent steps taken in liberalising FDI, will further reinforce India’s markets. While looking at the larger picture, there is absolutely nothing to worry about. The Indian markets however need to worry a bit about the much discussed Foreign Currency Non-Resident (FCNR) fixed deposit which is expected to begin in the third week of September.
How the central banks respond to the Brexit, will decide the fate of economic growth and stability in the Indian markets for the fiscal year 2016-17.
|Anant Mishra is a former Youth Representative to the United Nations. He has served extensively in United Nations General Assembly, the Security Council along with the Economic and Social Council. He is also a visiting faculty for numerous universities and delivers lectures on political economics and foreign policies.|
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