How Brexit will impact you?

What is Brexit

The term Brexit is not uncommon to most of us who are investing. However, for newcomers, it is a combination of Britain and Exit. On June 23, 2016, the United Kingdom (UK) held a referendum. Voters were asked to give their opinion on whether or not the UK should remain a member of the European Union or leave. The outcome of the vote was unexpected and 'Leave' won, 51.9 per cent to 48.1 per cent. Now as per the rules of the treaty, UK has two years to leave the European Union. British Prime Minister Theresa May started the clock for this process on March 29, 2017, meaning the UK is scheduled to leave on March 29, 2019.

The British parliament is scheduled for a historic vote on Tuesday (January 15, 2019) evening on Prime Minister Theresa May’s exit plan. If the parliament votes in favour of Brexit, UK will be leaving the European Union by the end of this quarter or by March 29. This will have repercussion on the global economy; however, the impact will be based on the way Brexit take place.

Types of Brexit

There are two possibilities. First is the ‘Soft Brexit’ which means the UK would still remain a member of trade bloc and will follow some of the rules with regard to tariffs and immigration. The impact of such an exit will be minimal. Nevertheless, if Britain goes for a ‘Hard Brexit’, it would mean a complete separation of UK with the European Union. The current proposal is to go for soft Brexit now and by 2020, it would go for hard Brexit.

Impact on Investments

Many Indian multinationals companies have offices in Landon, which provides the entrance to the European Union. A soft Brexit may give them time to prepare for the hard Brexit. It will give them time to relocate business setups to other places. Nevertheless, a hard Brexit will impact them adversely.

The sectors that will be impacted most will be information technology, pharmaceutical and automobile. Therefore, funds dedicated to these sectors will definitely get impacted. Nonetheless, the impact will be short-term and as business adjusts them, it will be business as usual. In the long-run, it will be good for India as the UK would be looking for highly skilled Indians to fill any skill gap. Some of the sectors that will be benefited in the long-term will be textile, machinery, engineering goods, information technology and banking. Therefore, if you are a long-term investor, you should not be unnerved by the short-term volatility and remain invested.