"IT'S EU OR ME" SAYS BRITAIN!
By Ruma Dubey
Whoooaaahhhh!! What a morning!! We all had happily gone to bed thinking we would wake up to life as normal, with the Brexit issue behind us, looking for other triggers. That’s what the markets too had assumed - that Britain will not move out.
But most of us were taken aback. Though it was a close call – 48% for remain and 52% for leave, the verdict is that Brexit is a reality now. Following this, our market crashed over 1000 points at one juncture but recovered towards the afternoon by some 200 points. The British PM David Cameron announced his stepping down in October. The pound has been pounded down to pulp, rupee is down to Rs.68 levels but the RBI is standing watch and has assured that it will step in hitting a 31 year low. Gold hit the 6% upper circuit in the morning and crude too has plunged. European markets are all down in the deep red, all down over 8%. The Yen and US dollar have become safe havens just as bonds have. We have witnessed history in the making today.
The initial reaction of the Indian markets was panic. There was literally mayhem as no one knew what could happen. Even now we don’t know but at least some sense of semblance is coming back.
To say that we Indians do not have worry at all because it is happening there between UK and Europe is naïve. In the globalized world, we will be affected but most certainly not enough to maim the country, like the way the Lehman crisis did. At this point, it is essential to say that this is nothing like a Lehman crisis – that was an unexpected, financial liquidity crisis but this one, though it took us all by surprise was something which the central banks and Govt’s knew could happen. So what we are looking at now is more of a political crisis and in that sense it does not affect us directly.
The divorce is not going to happen overnight. It will be ugly and long drawn but what we know is that negotiations will be on for a year or two; for now it would be status quo in terms of trade, free movement, services. The split could get formalized within the next two years which means there is time for all this to be absorbed, to make this split smooth and less painful. UK will continue to follow the treaties and rules of the EU but it cannot participate in the decision making process. All this is unchartered territory. This is for the first time that a country is moving out the EU.
The bigger worry- more than the UK exit is about the disintegration of Europe. The question is whether the Brexit could prompt the other 27 members of the EU to initiate similar break free referendums? Politically, many countries in Europe have gone extreme Right as far as political leaning is concerned. And this growing antagonism over migrants, this need to close down borders, the mounting feeling of xenophobia is what could lead many others to move away. Netherlands, Poland, Greece, Italy, Spain and even some in France support a break from EU.
If EU makes this split process easy and smooth for UK, it will send the message across that splitting would be no big deal. And that is why we could see the EU making it tough for the UK to exit, in a way, sending out a warning to others. UK will undoubtedly go through a recession and Europe too will face a slowdown. That is what could affect us – trade which in turn means companies with large exports to UK will face turbulent time to adjust to this new dynamics. We already know that IT companies, Tata Steel, Tata Motors, Motherson Sumi, Bharat Forge would be forced to recalculate their strategies.
This Brexit, apart from the shock value does not affect us, the common people. For us it is back to the “aate-daal-ka bhaav”. We need to wait and see how this unfolds. It’s too early in the day to conclude anything. Yes, it’s a good time to buy into quality, long term stocks. But to buy now or wait for more decline? If long term is your story, every fall is an opportunity. Our Editor Mr.SP Tulsian has recommended Balrampur Chini, MCX, SBI, M&M, SML Isuzu for long term.
For now, let’s look at the positives we could have – our own reform process, the passing of GST, the falling crude price, good monsoon and the prospect of US rate hike getting postponed further.
Instead of a prey with fear lurking in the heart be a predator, hunting for the best.
PS: A lot of jokes on this Brexit have started doing the rounds. Sharing a few:
Ordinary British citizens are totally confused by this Brexit because for the first time in history, countries do not want the British to leave!
Positive thought for the day – if you weigh yourself in pounds, today you would have lost a lot of weight!
On a lighter note – Vijay Mallya enters UK and the pound crashes…yeh nahi sudhrega!