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BREXIT and its Impact on Indian IT Industry

Overview

The world is shocked following Britain’s fallout with the European Union (EU). Britain voted for an exit from the EU on June 23, 2016. And the world does not know how to react…! No one in the world is aware, as of now, that how the global economy will be impacted by this decision. India’s $146 billion IT industry heavily depends on Europe as it is the 2nd largest market for the Indian IT industry. A number of EU IT companies are headquartered in UK and that is the only access for trade around whole EU. Around 800 of the Indian IT companies are in contact with UK, and over 1,10,000 employees are employed there.

With the instability surrounding the British pound, Indian companies are bound to face hardships in the future. There is a huge amount of unpredictability about the upcoming strategies between the UK and Europe. The changes going to occur in the financial and banking domains are keeping everyone on their toes.

As per Indian IT Industry body NASSCOM, everyone is assuming that there could be a “decline in the value of the British pound, which could render many existing contracts losing propositions unless they are renegotiated.”  Post-voting, the pound declined to a 30-year low against the dollar.

As per the NASSCOM, there may arise a requirement, where Indian IT companies will have to set up different offices and employ separate teams for the UK and EU in the future as a result of the intended fallout. The Indian IT companies will have to bear additional expenditures for such plans. Experts are watching the developments closely so that necessary steps may be taken to bring into line the plans f the companies with the requirements of the clients. Some IT multi-nationals have started strategizing to shift their employees from Britain to other nations, like Morgan Stanley which has taken steps to move 2,000 investment banking jobs from London to Dublin and Frankfurt.

Short-term Impact

Most of the Indian IT companies saw a fall in their shares June 23rd; the day voting result was made public. Almost all the major players of the IT sector like; Infosys, Wipro, TCS and HCL, saw a decline in their stocks in the range 1% to 4%. The IT companies involved in outsourcing, which get 85% to 90% of their revenues from abroad, generally play the hedging game to secure themselves from any abrupt shocks. Different companies have varied hedging cycles ranging from 90 days to 12 months or more. This fallout can have a direct impact on the mark-to-market trade, which can affect the current quarter.

 

The Wait and Watch Game

The Indian IT giants will have to adopt a wait-and-watch policy, as UK’s future business policies are yet to be made clear. Wipro issued a statement stating that it is monitoring the probable impact of Brexit “on a host of factors including mobility of labour, (and) changes in the financial system.” There are around 4,000 employees of Wipro in UK.

Infosys, being India’s 2nd largest IT Company, did not issue any remarks after the Brexit issue. However, its CEO stated that there may be an impact on the company’s business if UK makes a decision to exit EU.

 

India-UK Ties

There, however, seems some optimism in this situation that India-UK economic relations may strengthen. This may result in more incoming business for Indian companies. As per NASSCOM’s observation, UK may further look to balance-off the loss privileged entrée that it used to get into European Union. Also, since there will be a decrease in the intra-EU immigration into UK, more doors may be opened for high-skilled immigration from other non-EU nations, especially India.