Cheaper crude only silver lining for country, say analysts

Domestically, the ensuing global volatility could put both currency and debt markets on tenterhooks, but the markets will await clarity from global central banks as they tackle this unprecedented event.

Flagging a slew of concerns arising from the Brexit which may even put their growth estimates under pressure, domestic rating agencies on Friday said a possible decline in oil prices is the only positive outcome from Britain's decision to exit the European Union.

"There are modest downside risks to our forecast of an improvement in growth of the domestic GVA at basic prices to 7.7 per cent in 2016-17," Icra senior economist Aditi Nayar said in a statement.

She said while the country's merchandise and services exports may be hit because of the referendum, inward investments may also be affected despite the recent foreign direct investment liberalisation.

India Ratings principal economist Sunil Kumar Sinha said the Brexit is a mixed bag for the country, with a possible slump in oil prices being the only positive.

"As Brexit will vitiate the already uneven and fragile global recovery, it will exert downward pressure on global commodity prices and the country will benefit being a net commodity importer," he said.

Nayar also concurred, saying a sustained fall in crude can offset the impact of lower exports on the current account deficit and the rupee fall relative to the dollar on inflation.

Sinha said the risks in global financial market will result in outflows by investors and put pressure on the rupee, while Nayar expects the domestic unit to trade in the 67.5-70 till next March.

Icra said high forex reserves in historical terms, moderate short-term external debt even after accounting for the upcoming FCNR (B) redemption, and a narrow current account deficit limit the vulnerability of the country's external account.

Sinha said domestic corporates having exposure to Europe/Britain either through trade or in case their production units are located there would be adversely impacted by the decision.

Ind-Ra also said that Brexit is likely to create more uncertainties rather than alleviating them in the coming months and will bring central banks back in focus.

Domestically, the ensuing global volatility could put both currency and debt markets on tenterhooks, but the markets will await clarity from global central banks as they tackle this unprecedented event, it added.

Ind-Ra believes that the Reserve Bank's initial line of action will be to address temporary shocks in systemic liquidity through liquidity channels rather than policy rates.

On a positive side, Ind-Ra noted that the US Fed will stay put with a protracted pace of hikes and this may check the deterioration in overall emerging market sentiment.

"The US Federal Reserve is likely to delay its ongoing rate normalisation," it said.