Setback temporary, reforms to drive markets

MUMBAI: There could be some volatility in India’s financial markets following Brexit, but the impact on the economy will be limited, since India is less exposed to Britain than its Asian peers.

“The negative impact of Brexit on India is limited in the near-term. Most of the impact is likely to be on investor confidence,” said Saurav Anand and Anubhuti Sahay at Standard Chartered. The domestic orientation of India’s economy will keep the need for monetary or fiscal support to a minimum, they added.

The Sensex rose 121 points on Tuesday to close at 26,524, due to optimism in anticipation of Japan launching a fresh round of economic stimulus to counter the implications of Brexit.

“Given the lower direct exposure in terms of exports to the UK, we expect the impact to be less on India,” said Morgan Stanley AsiaPacific economist Chetan Ahya.

Credit Suisse, too, believes India’s economy will continue to improve. “As reform activities in India are largely intrinsic in nature, underlying economic prospects should continue to improve, albeit at a slower pace than earlier expected,” said Neelkanth Mishra and Prateek Singh of Credit Suisse.

Reports of good progress in monsoon boosted consumer goods makers, such as, HUL and ITC, which depend largely on the rural economy, dealers said.

However, given that over half of foreign institutional investors’ holding in Indian stocks is not thorugh India-dedicated funds, a global risk aversion could impact India’s fund flows as well. After Brexit, stocks of companies that have large exposure to the UK have seen some sell-off. For instance, Tata Motors, the owner of British luxury Jaguar Land Rover unit, fell almost 10% over the last three trading sessions, while Tata Steel declined 7%. Others, including Infosys, TCS and Tech Mahindra, too, have been under pressure, given their exposure to the UK.

“Some of India’s prominent companies have big investments in the UK and their prospects could be hurt if the UK slips into a recession,” said Jigar Shah at Maybank Kimeng Securities.

However, the economy will be cushioned as a normal monsoon could lift farm growth, he added.

(With agency inputs)