How Brexit could be both bad and good for India

It is expected that the if Britian exits from the European Union, which is to be decided through a referendum on June 23,, will topple international equity and currency market, and India cannot escape the brunt of the impact. But in the long run, Brexit may be good for India.

British politician and leader of the UKIP party Nigel Farage holds up a placard as he launches his party's campaign for Britain to leave the EU, outside the EU representative office in London.

Archana Khatri Das

New Delhi: Reserve Bank Governor Raghuram Rajan, Monday said that Brexit could be "quite damaging" if it happens.

Markets across the world, including India, are hoping that Britons do not approve the county's exit from the European Union, because the separation will scathe the markets across the world. It is expected that the Britian's exit from the European Union, which is to be decided  through a referendum on June 23, will topple international equity and currency markets, including India.

As per analysts, a vote for Brexit may unleash volatility not seen in a quarter of a century. 

Indian BSE Sensex fell as much as 400 points or 1.5 percent last week in a single day, spooked by the possibility of Brexit. Analysts in India, on their part say that not Rexit, but Brexit was of greater cause of concern for the Indian markets.

Rupee may depreciate because of the double effect of foreign fund outflow and dollar rise.

Indian industries, particularly the IT and ITES with exposure in the UK may also have to burn fingers.

A Bank of America Merrill Lynch analysis said that Brexit may tick off recession risks, particularly denting IT demand further in FY17.

Bank of America Merrill Lynch has reported the bad news that five large Indian IT companies have 8-15% revenue exposure to the British Pound, which may be largely unhedged.

Other than the IT companies, the other Indian companies operating in the UK are Bharti Airtel, Emcure Pharma, Apollo Tyres and Wockhardt. 

Analysts add that Brexit could be positive for India in the long run as India would be able to increase its trade with the UK, as the country would no longer have to abide by the trade rules that came with the EU membership.