Brexit: Rs 2 lakh crore of Indian investor wealth is wiped out

A rout in equity markets wiped out nearly Rs 2 lakh crore in investor wealth in a single day on Friday as Britain’s vote to exit the European Union triggered panic selling across the globe, pulling down key benchmark equity indices in Europe by five to 10 per cent. The domestic equity markets opened the day deep in the red and, within an hour, the Sensex was down more than 1,000 points as Britain’s exit from the EU stoked fears about anti-EU forces gaining strength in other parts of Europe. This, according to market participants, could undermine global growth, threaten the EU’s stability and pose a serious risk to the euro.

The Sensex sank over 1,000 points soon after opening, wiping out nearly Rs 4 lakh crore of investors’ wealth before closing the day at 26,397.70, losing 604.51 points, or 2.24 per cent, its biggest fall since February 2016. The Nifty closed the day at 8,088.60, losing 181.85 points, or 2.20 per cent. Companies with exposure to the EU were hammered badly on the domestic bourses. While Tata Motors’ shares sank 7.99 per cent, the shares of Tata Steel plunged 6.37 per cent and were the biggest losers among the Sensex constituents.

“This will lead to a period of uncertainty. Risky assets across the world are witnessing selling pressure, which could intensify going forward. While market participants have been discussing it, the risk wasn’t priced in adequately. Brexit is not a one-off event but may have far reaching implications. Anti-EU voices in other parts of Europe will gain strength. Anti-globalisation voices (like Donald Trump) will gain strength,” observed Navneet Munot, chief investment officer at SBI Mutual Fund. While this kind of event has historically impacted Indian equity markets disproportionately given the excessive dependence on FII flows, Mr Munot said, “With steady flows from domestic investors and improved macro fundamentals, our ability to weather these storms are relatively better.”

According to provisional data released by the stock exchanges, foreign portfolio investors sold equities worth Rs 629.14 crore.

In a post-Brexit note, analysts at Morgan Stanley said India and South Korea continue to be their most preferred countries in Asia and their emerging market universe. Analysts at HSBC Global Research believe Asia is in a reasonably strong position to withstand the latest tremors from Europe. “India, Indonesia, and Philippines are more insulated, at least in growth terms (if not in terms of forex volatility),” said Fredric Neumann, co-head of Asian Economic Research, HSBC.

“We see Brexit as a buying opportunity in the long term. While it is difficult to predict market movement in the short term, recent correction offers a long-term buying opportunity for investors. We will be concerned if the monsoon turns adverse, not Brexit, as we feel that a normal monsoon is one of the most important factors for the markets,” said S. Naren, ED and chief investment officer, ICICI Prudential AMC, while adding that Indian equities could do well compared to other emerging markets owing to favourable domestic macroeconomic factors and low crude oil prices.