Contrary to hopes of many, the Britain has voted to leave the European Union. As the news of Britain’s exit trickled in, Indian markets tumbled with the Sensex falling by more than 1,000 points.
So how does this event affects Indian stock markets? We spoke to a few fund managers to understand what they make out of this event.
Chandresh Nigam: A good buying opportunity with 3-5 years perspective
Chandresh Nigam, MD & CEO, Axis Mutual Fund believes that the Indian economy is well-prepared to tackle this situation in the medium term. “In the short term, nobody knows how markets will behave; however, in the medium term, markets will recover due to strong fundamentals of our economy. A few companies, particularly listed in London, may witness decline in their profitability. However, a small positive of Brexit for India is that commodity prices will continue to head south. I believe the Indian economy will continue to witness GDP growth of over 7%. For me, it is a buying opportunity with 3-5 years perspective.”
Lakshmi Iyer: India is relatively insulated from this event to some extent
Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mutual Fund is of the view that the Indian currency is likely to come under pressure in the near term. “The recent Brexit decision has led to volatilities in markets across the globe, including India. While a larger assessment of its impact of India is still underway, we are of the view that India is relatively insulated from this to some extent. Liquidity situation globally is likely to improve from the current levels, which would mean positive for world interest rates."
Lakshmi believes that the Indian currency is likely to come under pressure in the near term. “However, the central banker’s intent to maintain an orderly bias in currency markets should take care of interim volatilities.”
Rajeev Thakkar: Selective buy opportunities may emerge in the turmoil
Rajeev Thakkar, CIO, PPFAS Mutual Fund feels that Brexit will dominate the headlines for a few days till the attention of the world is diverted to a new event. “Britain was never a part of the single currency and the impact on business fundamentals is expected to be at the margins. The knee-jerk reaction seems to be on account of the fact that most people expected a verdict of remain in the EU and the vote has turned out to be exit. Selective buy opportunities may emerge in the turmoil.”
Ritesh Jain: Safe heaven assets to benefit
Ritesh Jain, CIO, Tata AMC believes that volatility will increase as positions get un-wound and markets speculate on the future of Europe. He says that biggest beneficiary will be the safe havens - dollar denominated assets (especially short term US treasury) and gold.
S N Lahiri: Good time to increase equity exposure for tactical investors
SN Lahiri, CIO, L&T Mutual Fund is of the view that Britain’s exit from European Union may jitter the Indian equity market for a couple of months at least. “India’s flagship IT sector will be affected due to Brexit. In addition, many Indian companies who have business in Britain will get affected. We will witness outflows from FIIs in the near term. This would definitely cause jitters in the market for a couple of months. However, considering the fundamental recovery of Indian economy, the market may rebound in 18 months.”
He suggests investors to make a tactical call by investing lump sum in equity funds.
Navneet Munot: Our ability to weather these storms is relatively better
Navneet Munot, CIO, SBI Mutual Fund says, “On a relative basis, India's macro fundamentals have improved with continuing reforms, record level of forex reserves, contained fiscal and current account deficit and inflation under check. Private consumption has been showing signs of improvement. Better monsoon, government spending and 7th pay commission should help in sustaining the growth momentum.”
Navneet says that we have to remain vigilant as there are strains in corporate and banking sector balance sheet. “We can't be completely insulated from what's happening in rest of the world. Global economy continues to face challenges and Brexit has added another dimension of risk. Rupee is likely to remain under pressure as U.S. dollar gains on safe-haven demand. While there could be some outflows from FIIs in Indian bonds; in a global risk-off environment, bond yields are likely to soften.”
“Our equity markets will continue to gyrate to the tune of global sentiments in the near term. After the run-up in markets since March, some bit of correction was warranted and Brexit event has acted as a catalyst. Historically, these kind of global events have impacted Indian market disproportionately given the excessive dependence on FII flows. With steady flows from domestic investors and improved macro fundamentals, our ability to weather these storms is relatively better, adds Navneet.
Nimesh Shah: A buying opportunity in the long term for domestic investors
Nimesh Shah, MD & CEO says, “We see Brexit or any global related market correction as buying opportunity in the long term for domestic investors. At this juncture, the monsoon turning adverse will concern us much more than Brexit. We believe a normal monsoon is one of the most important factors for the markets. We believe Indian equities could do well compared to other emerging markets owing to favourable domestic macroeconomic factors, low crude oil prices and corporate earnings growth.”
“The Indian economy is in a comfortable position based on the steep fall in crude oil prices over the last year and our expectation of a normal monsoon this year. India’s current account is also now almost neutral. The domestic economy is on its way towards a cyclical recovery and this could lead to a revival in the earnings cycle,” he adds.
Rajiv Shastri: The reaction in the global markets to the UK Referendum is an exaggerated one
Rajiv Shastri, MD & CEO, Peerless Mutual Fund is of the view that all the perceived negatives are merely speculation. "To our minds, the reaction in the global markets to the UK Referendum is an exaggerated one. Any reaction of this sort presents a buying opportunity. This is especially true for India, since almost every factual development after the vote presents a benefit, whether it's lower oil prices or a slower increase in US interest rates. On the other hand, all the perceived negatives are merely speculation. As always, facts need to be trusted more."
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