The markets have reacted sharply to Britain’s vote of exiting the European Union. As the uncertainty on how and when the exit will be planned and its impact on UK as well as other nations slowly unfold, markets are likely to remain volatile. If you are looking for averaging opportunities, this is the time to buy.
As we pen this note, the Sensex is down over 700 points or 2.75% and other Asian markets have fallen more.
This fall is triggered by foreign institutional investors (FIIs) selling, reacting to the news of Brexit (Britain’s exit of EU). Much of the fall is in large bellwether stocks. Besides a market fall, we expect the rupee to be volatile and yields of bonds to go up.
What to expect
While India’s trade ties with Britain has been sound and our initial thought is that our bi-lateral trade agreements could actually strengthen, what causes uncertainty at this point is the impact on Great Britain. Any slowdown in the economy can hurt some of the trade (especially exports) that India does – in IT, pharma, auto and so on. Indian companies also have FDI exposure in UK and any slowdown can also impact earnings growth for companies invested.
We will put out a more detailed note on India’s ties, sector exposures with United Kingdom and the impact it could have and also further update you as and when events unfold.
For now, nothing changes India’s fundamentals. We have sound tail winds in the form of lower interest rates and inflation, improving production numbers and comfortable deficit. As we see FII money churn across countries, it is likely that they may settle quite a bit in India, given that India has stronger fundamentals at this point compared with all emerging nations.
What to do
We would urge you to use the fall today to average your mutual fund investments. You could invest a chunk of your money today and further add to it in 5-6 phases over the next several weeks as market remain volatile. If you are running SIPs, do not make the mistake of stopping them.