Britain’s decision to move out of the European Union (EU) comes at a time when the global economy is not in great shape and growth forecasts for 2016 have been marked down.
Brexit, therefore, has added to the weakness, fragility and uncertainty, and not surprisingly, roiled markets.
CRISIL says Brexit is unlikely to have a notable impact on India’s GDP growth in fiscal year 2017 and it has retained its forecast of 7.9%, with agriculture as the swing factor.
The rupee could see volatility in the coming weeks as global markets remain in dread.
CRISIL expects the Indian rupee to settle around 66.5 per dollar by March 31, 2017, with a downward bias.
However, Britain’s exit from EU is likely to impact Indian companies in a multiple ways like the 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 and balance sheet impact on account of exposure to unhedged overseas borrowings.
CRISIL sees Auto, IT, textiles, pharma, leather & metals as the most vulnerable sectors as well.
Companies in sectors such as automobiles, auto components, information technology services, textiles, pharmaceuticals, gems and jewelery, leather, and leather products are most vulnerable to changes in demand and currency value.
Within the automobile space, component suppliers will be more adversely impacted compared with original equipment manufacturers with the exception of the JLR business of Tata Motors.
Around a quarter of India’s auto component exports are to Europe.
The UK has a share of 5% in overall exports.
Any dampening of prospects due to economic uncertainty and depreciation of the pound would have a corresponding impact on the revenues of these companies.
By Sarthak Kathayat (An intern at FE.com)