Tata Steel, Tata Motors and Maruti Suzuki India Ltd. (MSIL), along with Motherson Sumi Systems and IT software companies, are among those Indian firms that are likely to be worst-hit as a result of Britain leaving the European Union (EU).
These companies would face the heat emanating from Britain exiting the 28-member bloc after 43 years, even as India is relatively insulated from the aftershocks due to its limited exposure to the global economy, according to Kotak Institutional Equities (Kotak).
If the global demand for commodities weakens further, it would have a direct impact on Indian metal companies in terms of lower prices. The hit would be much more on Tata Steel, given its Europe revenues. "Tata Steel could see medium-term negative impact if and when import duties (if any) emerge on trade between the EU and UK post the UK leaving the EU. The UK plants of Tata Steel Europe export 30% of its output to Europe," the financial services firm said in a note issued after the final results were out.
Tata Steel UK has a high exposure in the region; it's U.K. sales account for 60 percent and the company exports 25 percent to Europe, with the rest to markets outside the region, according to the company's fact sheet.
The Tata Steel share was among the major Sensex losers on the BSE on "Black Friday," ending 6.37 percent lower at Rs. 312.50.
Jaguar Land Rover, which was acquired by Tata Motors in 2008, is another company whose business prospects could suffer should Britain levy fresh taxes in a post-Brexit scenario. The 28-member EU accounts for 18 percent of Jaguar Land Rover's overall volume sales, according to Kotak and therefore could see its business go down if taxes are imposed. "We see negative impact on volumes in the short term due to the uncertainty from 'Brexit' and in the medium term from possible imposition of import duty on JLR's exports to the EU," said Kotak.
On the upside, Jaguar Land Rover could benefit by a weak pound, which plunged to its 31-year-old on Friday.
Shares of Tata Motors fell 7.99 percent to close at Rs. 449 apiece on the BSE.
Maruti Suzuki India
The fortunes of the company could be hit as a result of the Japanese yen hardening against the British pound, leading to shrinking operating profit margin. "Our current estimate for JPY-INR is 0.6 for FY2017 and FY2018. The JPY-INR is around 0.67 currently," Kotak said in its note.
Besides these companies, Indian IT software services firms such as Tech Mahindra, TCS, Wipro and Infosys are also vulnerable given the contribution of Britain to their total revenues. The U.K., besides accounting for about 6 to 18 percent of the revenues of Indian software services firms, is also a gateway for the rest of Europe.
Tech Mahindra closed 4.74 percent at Rs. 506.85, TCS at Rs. 2,570 (down 2.78 percent) and Infosys at Rs. 1,194.50 (down 1.41 percent).
Insulated India less vulnerable to Brexit fallout
With exports accounting for about 20 percent of the country's gross domestic product (GDP), India need unduly worry about the referendum outcome. "The Indian economy is relatively insulated from global forces as it is a largely domestic economy...India's linkages with the global economy are quite weak. We do not expect any material impact on macroeconomic parameters such as CAD, fiscal deficit and inflation," said Kotak, adding, "If anything, lower crude prices will moderate the impact of lower exports on CAD/BoP and provide additional cushion to the government's finances."