How will the Brexit impact Indian businesses, what would be the short-term and long-term ramifications? The sharp drop in asset classes clearly indicate that the markets despite the long discussions on the issue were taken by surprise and the uncertainty surrounding the move has created a sense of apprehension about what the future holds.
On the face of it Indian companies with significant exposure in UK like Tata Motors, Tata Steel, several pharmaceutical players like Cipla, Lupin and ancillary majors like Motherson Sumi might have to rework at ways they conduct business across Europe and look at alternate destinations to market their product to rest of Europe. This is because UK’s exit from the European Union would mean that the overall tax and custom provisions would see a major change. But all this is unlikely to have any major impact in the immediate term. As per the Lisbon Treaty, the countries in case of an exit from EU have two years to formalize the process and this could be extended further as well if other countries agree.
However in the broader perspective, UK’s exit from the European Union is a major blow to the overall call for globalization and efforts to bring in business together and forming collective groups. However it would be wrong to imagine doomsday scenario. Afterall Governments across the world and their Central Banks would not be sitting idle and watching the show. They would leave no stone unturned in bringing about greater liquidity support and flooding the markets with money to brace this period of crisis.
On the positive side, if you may consider, any rate hike from the Fed in the given situation is highly unlikely. The Fed will most probably stay put in their current approach and play the wait and watch game. But the fact remains that risk has increased and no one exactly knows how this entire scenario will pan out. Some experts are also of the opinion that a second referendum to ratify and formalize the exit could also be in the offing.
Well at this juncture it is perhaps time to wait for the water to settle down and a sense of calm to trickle down across world markets.