Comments by Ms. Aditi Nayar, Sr. Economist, ICRA Ltd. and Mr. K. Ravichandran, Sr. VP, Co- head, Financial Sector Ratings, ICRA Ltd. on Brexit Impact on Indian Economy, and Indian Oil & Gas Industry.
Ms. Aditi Nayar, Sr. Economist, ICRA Ltd. comments on Brexit Impact on Indian Economy
Post-Brexit uncertainty may weigh upon the performance of merchandise and services exports and delay the concretization of investment plans, partly moderating the expected benefit of the recent FDI reforms.
The extent of disorderliness in global markets and risk aversion as well as political developments in the European Union would determine the level of contagion in the Indian financial markets as well as the impact on Indian economic growth, although domestic consumption would largely cushion the latter. On balance, there are modest downside risks to our forecast of an improvement in growth of India’s GVA at basic prices to 7.7% in FY2017.
High foreign exchange 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 India’s external account.
If the fall in crude oil prices sustains, it would offset the impact of lower exports on the current account deficit as well as the effect of the depreciation of the INR relative to the USD on inflation. We expect the INR to remain in the range of Rs. 67.5-70.0/US$ over the course of FY2017
Mr. K. Ravichandran, Sr. VP, Co- head, Financial Sector Ratings, ICRA Ltd. comments on Brexit Impact on Indian Oil & Gas Industry
“Brexit should be credit positive for the Indian Refining and Marketing (R&M) industry, as crude oil prices are expected to remain subdued in the near term due to heightened uncertainty about demand growth in the EU region. This should translate to low under recoveries and working capital borrowings for the R&M companies, besides giving a leg up to petroleum products demand growth with possible roll back of consumer prices in the ensuing weeks. While INR could depreciate further against USD, which could partly neutralise the oil price decline, the net impact should be positive for the R&M companies. Overall impact should be positive for PSU upstream companies as well, so long as oil prices are within $40/bbl-$45/ bbl, as the recent oil price rally was resulting in higher cess incidence. GoI also stands to gain through lower subsidy burden on LPG and SKO.”
