India’s 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 charges.

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 EU’s 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 Britain’s 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 EU’s 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 Britain’s 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 Don’t presage big change in GDP growth this fiscal 2017 No significant downside to exports Peer currencies key to India’s 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. India’s 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)  Jaguar and land Rover are UK based and are UK’s largest automotive 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