Britain’s exit from EU has badly affected India as it shuts India’s direct access to the EU markets. Overall, this global event has resulted to several financial and economic implications on the world’s economy and not just Indian economy. It had created a panic among the traders leading into financial market volatility across the world. Consequently, for over a month the alarm bell of risks related to trade, finance and confidence channels rang loud in the forex market.
It has not only weakened the European economy. Along with it, world export level was hurt with weakening European currencies and imposed renewed downward pressure on major exporting countries. Now, the present world situation will largely depend on the kind of trade deal Britain negotiates with EU. It will definitely have no big reductions in its access to a single market.
Manufacturing companies like Jaguar have already stated that just-in-time production models will be severely hampered. Under the no-deal Brexit, the British economy is expected to become smaller and the merits of the Indian companies located in UK and European hubs is also expected to witness lower gains.
There is a significant impact of the Brexit seen on most of the sectors of the Indian Economy. UK contributes about 3% of India’s exports and the EU about 17%. An economic slowdown in the UK or EU as a result of Brexit could impact India’s already faltering exports. However, some believe that India may also end up getting new trade opportunities with UK after Brexit.
India’s machinery and transport equipment constitute 40% of India’s exports and accounts for nearly 20% of total UK’s trade with India. The UK’s exports of alcoholic beverages also registered a significant increase from pound 14m to 162m from 2002-18.
Impact of No Deal Brexit’s on Forex Market
Surrounded by extreme concerns over fair trade, immigration and national security, UK’s exit from the EU led to GBP reacting negatively. Pricing volatility was high with GBP levels dipping to a record low in the last two years. The value as reported fell more than 10% in the hours after the vote was made final.
This huge fall out in the currency market knocked down the profit scale of exporters across the world and India being no exception. Now even though the GBP levels are recovering slightly level by level, yet the entire Brexit process had posed tumultuous effect on GBP.
Indian Economy Face an Adverse Effect
Indian companies with Europe exposure like TCS, HCL, Maruti Suzuki face downgrade risks post Brexit. Amid uncertainty looming over the impact of Brexit, analysts have started downgrading the revenue estimates for some of the export oriented companies from Indian IT, automobiles, metal and pharmaceutical sectors which are likely to be hit the most. The EPS estimates of stocks like TCS, HCL Technologies, Maruti Suzuki, Tata Motors, Tata Steel, Balkrishna Industries have been cut as India’s UK and Europe bound exports may come under pressure.
Coming down to export of agricultural produce Indian mangoes, pomegranates, vegetables like lady’s finger, corn and chillies are exported to the UK. Indian exporters are now under severe pressure that they may face a decline in the demand for Indian vegetables. The exchange rate vis-a-vis the pound is likely to have long term implications. Food prices in UK are soaring high and this eventually leads to a drop in demand for exotic vegetables and fruits. Higher selling prices would also lead to a fall in sales.
UK is among the most important destinations for Indian vegetables and fruits and export of fresh vegetables to the UK stood at Rs 183 Crore in 2015-16. The country is also one of the largest importers of Indian grapes and mangoes. The decline in the demand is mainly due to currency related issues and exporters hope that there would be some benefits like exemption of some duties and relaxation of phytosanitary norms.
Pound struggled near about six months low against the dollar. Dollar also fought for traction against the Japanese Yen as the prospect of Federal Reserve Interest rate cut later in the month. There has been a decline in the reports and this has resulted in the transactions slowing down to a considerable level.
Thus with so much uncertainties looming around, it’s high time that MSMEs who have most of their Forex exposure in making payments for imports and exports from UK and other European Countries, should now think of taking up measured forex management steps. For such, getting in touch with experienced firms offering Forex risk advisory and forex transaction process outsourcing services can turn out to be real boon. The amount of pressure global events have shown in the past 1-2 years has led to a situation where betting on instincts can really damage the financial health of businesses. This therefore makes it pertinent for Corporate to think about outsourcing advisory solutions offered by experienced forex services companies.
24 Feb 2020 05:08 PM
When they say the currency markets are volatile, it is the spot exchange rate, which is being referred to, which fluctuates within seconds.
07 Feb 2020 03:19 PM
Derivatives market enables access to financial assets for trading at a future date and not just at the market trading date. In currency derivatives the trader agrees to buy or sell a fixed amount of a specified currency at the end.
27 Jan 2020 02:13 PM
Well devaluing a currency can give a thrust to the exports and reduce the trade deficit but for any economy which has higher imports, the consequences can be on the negative too.
16 Jan 2020 05:08 PM
Pegged exchange rate is the fixed rate at which the currency is converted from one to another. The rate is fixed by the monetary authority to order to stabilize the rate of exchange at a predetermined ratio of another currency which is more stable an
10 Jan 2020 06:00 PM
As markets are technology driven, the rise in foreign exchange transaction has done at the touch of a button making it the largest financial market in terms of volume.
03 Jan 2020 04:24 PM
Foreign exchange volatility is what drives the currency market and higher volumes are seen during the high volatile days. In the global foreign exchange market there are unpredictable movements of foreign exchange rates.