Brexit: IT sector braces for short term pain, hopes for long term gain

  • Kalyan Subramani, Hindustan Times, Bengaluru
  • Updated: Jun 24, 2016 17:39 IST
Stock brokers in front of screen outside the Bombay Stock Exchange which displays Brexit shocker in Mumbai on Friday. (PTI)

The Indian information technology exports that rides on a $30 billion (Rs 2 lakh crore) export to the European Union, half of which is in the United Kingdom, is bracing itself for short term increases in costs and a decline in value of British Pound even as it remains optimistic about the long term gains after Britons voted to leave the union after a national referendum was held on Thursday.

Industry body Nasscom (National Association of Software and Services Companies) said that decline in the value of the British Pound, which could render many existing deals losing propositions unless they are renegotiated.

Nasscom said that the protracted negotiations between Britain and EU on the terms of the exit could impact decision making for large projects. It also expects an increase in the cost of doing business in Europe as Indian IT companies may need to establish separate headquarters and operations for EU which may also see some disinvestment by Indian companies in the UK.

English as a language of doing business, linked to the historic ties between India and UK has until now served well in making London the gateway for Indian IT sector to the larger European market.

“Nasscom urges policy makers in Brussels and London to provide greater clarity and guidance on the next steps as soon as possible, so that our businesses have the certainty they need to continue to invest in UK and Europe”, said Nasscom President R Chandrashekhar. He said initial feedback from policy makers in UK indicates their commitment to minimize the possible negative impact of this referendum.

Nasscom believes that movement of skilled labour across EU and UK could be impacted and changes in the financial system, banks and impact on currency could ensue. Today over 110,000 Indian IT professional from around 800 companies work in the UK.

In the long term, however, Brexit could lead to strengthening of India-UK economic relationship as UK seeks to compensate for loss of preferential access to EU markets, said a Nasscom statement.

Ahead of the referendum, Infosys CEO Vishal Sikka at the company annual general meeting told shareholders that it could have “short term, small time effects on the currency and also potentially on business.” The company did not provide any fresh views after Britain’ exit from EU was confirmed on Friday morning.

A Wipro spokesperson said that the watching the developments in the UK closely “its potential impact on a host of factors including mobility of labor, changes in the financial system, and the currency.”

All 10 stocks in the Nifty IT index fell on Friday trading. While the IT stocks index fell by 2.47 per cent at close, Tech Mahindra suffered the biggest lost with a drop of 4.39% and Mindtree suffered the least with a 0.02% drop in price.

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