1. The biggest worry about the Brexit vote is that it has opened a Pandora's Box. Emoldened by the Brexit outcome, groups opposed to the EU membership in other European countries have already started demanding their own referendums.
2. The immediate impact of Brexit is an increase in risk aversion when it comes to investing.
3. "Risk aversion is likely to take hold across asset classes," The first hint of this was seen when crude oil fell while gold rallied 5% each just after BREXIT.
4. Among the global currencies, only the Japanese yen and the US dollar appreciated (considered as safe currencies by the market). Currency depreciation will further increase risk aversion and put more pressure on the weak Asian currencies.
5. The Indian rupee won't suffer much but won't be left unscathed. "The direct trade impact (on the rupee) is limited from UK, but global risk will likely weigh on India in the near furture.
6. The sudden increase in global risk aversion can impact the inflow from foreign portfolio investors (FPIs) to India.
7. However, the recent spike in inflationary pressure may force the RBI to not go for accelerated cuts.
8. Though the RBI may not go for accelerated rate cuts, the rate direction is still downward. This means short-term investors can bet on rate-sensitive sectors such as auto, infrastructure, banking, etc. The top gainers — PNB, Exide Industries, Dabur— were rate-sensitive companies and those catering to domestic demand. Similarly, investment in long-dated debt funds and tax-free bonds will also benefit from a rate reduction, an option investors could explore now.
9. Impact on GDP
Brexit will have an impact on India's GDP growth. "We have lowered our aggregate 2016 GDP growth forecast for Asia excluding Japan from 5.9% to 5.6% and India's 2016 GDP growth forecast to 7.3% from 7.6%," said the Nomura Report. However, there is no need for Indian investors to worry about this small fall in the growth rate, because we will still be the fastest growing major economy of the world. The government is also taking steps to boost the GDP grow .
10. When we look at the whole picture, it emerges that long-term investors need not worry about Brexit.
11. Aggressive equity investors, on the other hand, should try to use the current turmoil as an opportunity.
12. Also, even though India will be impacted by the global turmoil, it'll still be much better off. Indian markets perform better compared to most other emerging markets and also the developed markets.
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