On 23rd June 2016 , via referendum the United Kingdoms (UK) voted to exit the European Union (E.U), an economic and political partnership of 28 countries. How will Brexit impact India ? It is easy to imagine cataclysmic scenarios. The odds of the European Union and the euro unravelling and have increased considerably. The may well be the beginning of the end .
The euro and the pound have taken a beating since the results of the votes were announced . This vote will lead to a rise in risk aversion. Capital flows are at risk and competitive currency devaluations are more likely. Global ecomonic growth which was already seeing a downturn will be futher dampened. Brexit will be a blow against globalisation.
The Indian IT outsourcing industry is feeling the blow of this vote . Between Friday and Monday TCS lost nearly Rs.30,000 crore in market capitalisation, Infosys Ltd Rs.12,000 crore, Wipro Rs.3,420 crore, HCL Technologies Ltd Rs.5,078.73 crore and Tech Mahindra Rs.2,951 crore.
The IT industry has to brace itself for some major challenges following the Brexit . Europe generates around 30% of the revenues of the Indian IT outsourcing industry. Many IT companies have their EU headquarters based out of the Uk and use the country as a gateway to business across the continent. Some 800 Indian IT companies employ around 110,000 people there.
The major challenges for Indian companies arises from the volatility of currency – the pound and the euro. Also there is the uncertainity about future policies between EU and UK.
The decline in the pound would render many current contracts into losing propositions , unless renegotiated. . The terms of UK's exit and future engagement with EU could impact decision making for large projects . The pound dropped to a 30 year low against the dollar following the vote.
Near term impact is that shares of most Indian IT companies fell when Brexit became a reality. The benchmark S&P BSE IT index closed 2.1% lower than its previous close . Heavyweights such as Infosys , Wipro and HCL Technologies – shares closed between 1 % to 4% lower .
Overall , it is mostly a watch and watch situation for most Indian IT players. The market is waiting for clarity on the UK's future business policies. There is no certainity as how things will pan out but the world economy is waiting to see how this plays out.