With indications emerging that Britain has voted to leave the European Union, India companies like Tata Motors and IT companies with significant exposure to the United Kingdom will have to brace for consequences.
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These include firms in the services sector, especially IT companies with unhedged foreign exchange exposure. These stocks were the worst hit among the 30-Sensex bluechips during the morning trade.
Meanwhile, sharp depreciation in pound-sterling which slumped over 10 per cent following Brexit also impacted the shares of Tata Motors.
According to reports, a number of bidders for Tata Steel’s British operations are close to abandoning talks in the wake of Friday’s European Union referendum result.
There are fears that the United Kingdom operations of several Indian companies might take a hit due to immigration and other restrictions that might come in because of Brexit.
While the Tata Group has 19 independent Tata companies in the United Kingdom, with diverse businesses, Tata Sons said each company continuously reviews its strategy and operations in the light of developments, and will continue to do so. “Access to markets and to a skilled workforce will remain important considerations”, said Tata Sons, the holding company of the $109 billion group.
World financial markets dived as the Sterling suffered its biggest one-day fall of 9.4% against the dollar whereas the euro slumped almost 4% against the dollar on concerns of a “Brexit” vote. “There is an appetite at the lower level should markets react”, he said. According to reports, Indian IT companies get anywhere from 6-18% of their revenues from the UK.
IT industry body, National Association of Software and Services Companies (Nasscom), said Brexit would usher in a phase of uncertainty in the near-term.
In a statement yesterday, Tata Steel said: “Decisions by the United Kingdom electorate will always be respected by Tata Steel”.
Even several pharmaceutical companies have sizeable exposure to United Kingdom and Europe and may continue to remain under pressure.
India, on the other hand, is the third-largest investor in terms of number of projects in the UK. In the last five years, the trade has been more or less stable.
Shares of companies with exposure to the United Kingdom saw mixed trading ahead of the crucial “Brexit” referendum outcome.
Shares of Hindalco tumbled 5.17 percent, Dr Reddy’s Lab 0.64 percent and Bharat Forge 0.35 percent. With stocks markets in United Kingdom and the U.S. taking a hit, India will likely face a snowball effect.
Gopichand P. Hinduja, Co-Chairman, of the U.K. -based Hinduja Group said Britain’s exit from the European Union will be a “positive” for India-U.K. ties.
“We remain absolutely committed to our customers in the EU”.
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Market regulators have been on alert to avoid volatility in the markets, with the Reserve Bank of India (RBI) saying earlier that it would take measures, including providing liquidity support, to ensure orderly conditions in the markets.
