BRACE FOR IT

From Tata to Infosys, India Inc begins to feel the Brexit heat

Obsession
Brexit
Quartz india
Obsession
Brexit
Quartz india

Until now, there were only estimates of what Brexit could mean for India. But two months on, some of India’s biggest companies are starting to feel the real pain from Britain’s impending exit from the European Union (EU).

On Aug. 26, Tata Motors, India’s largest automobile firm, announced its quarterly results. The company reported a 57% drop in net profit for the April-June quarter, mostly because of foreign exchange losses at its Jaguar Land Rover (JLR) unit, Britain’s largest car-marker. Although JLR reported healthy sales numbers, the profit was battered due to the fall in the pound following the Brexit vote. The pound dropped to its lowest level since 1985, after Britain voted to leave the EU.

In June, analysts had told Quartz that Brexit will “have a significant impact on the UK automotive industry.” That’s mainly because some 50% of the vehicles made in the UK are exported to the EU. JLR, too, exports 20% of its total production to the EU. While there hasn’t been any major impact on sales revenue yet, the tremors from currency and commodity volatility are now visible.

IT woes

India’s $146-billion IT industry, which accounts for some 14% of the country’s total exports, is also worried.

Vishal Sikka, CEO of Infosys, India’s second-largest IT services company, said last week that some impact of Brexit is now evident.

“We are seeing the early signs. Clients are cautious and the RBS (Royal Bank of Scotland) issue was part of that. There is caution in pockets,” Sikka said. Earlier this month, RBS cancelled plans to spin off and list its UK subsidiary. Infosys, along with IBM, had bagged this unit’s IT service contract. To be sure, RBS had been considering such a move even before Brexit.

For India’s IT companies, the UK and US are major markets. Some 800 Indian IT firms have operations in the UK, and with the Brexit aftershocks revenues might take a hit.

“Near-term outlook remains challenging for Infosys in light of global macro issues like Brexit and client-specific issues,” Harit Shah, an analyst with brokerage Reliance Securities, said in a note on Aug. 29.

Other IT firms, including Tata Consultancy Services (TCS)—India’s largest—are also keeping an eye. “We need to watch how Brexit plays out, how companies react, especially financial institutions,” N Chandrasekaran, CEO of TCS, said in July.

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