Brexit deal spells good news for India Inc with large investments in UK

Britain and the European Union (EU) agreeing to a new Brexit deal spells good news for Indian companies with large investments in the United Kingdom (UK). If the agreement is ratified by the British Parliament, it will end the uncertainty plaguing the operations of many Indian companies for the last three years, said analysts.

The biggest relief will be felt at Bombay House, the headquarters of the Tata group, one the largest industrial investors in the UK through companies such as Tata Motors, Tata Steel, Tata Consultancy Services, Indian Hotels, and Tata Global Beverages. The group has invested nearly 50 billion pounds in the UK since its acquisition of Corus Steel in 2007.

Other Indian companies with a large exposure to Britain include Mastek, CRISIL, Solara Active Pharma, eClerx Services, Majesco, and Rico Auto Industries.

In an interview with Bloomberg, Tata group Chairman N Chandrasekaran had said that dealing with tariffs was the “new normal” for the global auto industry and that negotiations around Britain’s exit from the EU had taken too long. “Sometimes it’s better to have clarity than a desirable result,” he said. Tata Motors-owned JLR is likely to be impacted by Brexit. Shares of Tata Motors jumped about 10 per cent on the BSE on Thursday after the deal was announced, although JLR was hesitant to declare an end to the Brexit struggles of the car industry.
 

“We welcome the latest developments and await the next steps, but we cannot comment further until we have considered the detail of the deal and know whether it is supported by Parliament,” the company said in a statement.

Tata Motors investors have lost Rs 1 trillion since Brexit was announced on March 29, 2017, as the company’s UK subsidiary, Jaguar Land Rover Automotive, has been facing headwinds. At the end of the trading session on Thursday, Tata Motors investors gained over Rs 3,800 crore.

Other companies remained tight-lipped about the likely impact of the deal given it has yet to pass the muster of all the stakeholders. They, however, agreed the development was positive and brought a closure to the uncertainty.

JLR is a net exporter of finished vehicles and a net importer of auto component parts from the EU. A no-deal Brexit or a hard Brexit would have meant its models and parts would have faced tariff barriers, making them uncompetitive.

“If the transit between the UK and the continent is treated at a favourable rate, there’s likelihood that it will not attract any rate and the status quo would be maintained. This is a big positive,” said Mahantesh Sabarad, head, retail research at SBICAP Securities. One of the reasons for the stock going up was that fear of a hard Brexit, which has spooked investors over the last three years, receded, he added.