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Why Brexit & Rexit are actually good for India

The markets in generally are driven by two emotions :- fear and greed. In almost all the articles I write on markets I make a reference to this. For e.g. my article titled Why Oil Prices Will Go Up soon and what can sink it further . And it applies correct for most of the times.

For the past few weeks Brexit has been a buzzword for Dalal street. Analyst and market commentators have been too vocal on the same. Most of the talks (read almost all ) have talked how Brexit is negative for India. The term was recently overtook by a more local buzzword #Rexit which was the exiting of Raghuram Rajan as RBI governor. 
I always find it strange when our markets (or at least analysts) take foreign indicators too seriously. Considering the global environment is indeed wise but discounting the local context may not be considered smart. I have serious questions on the same and I share my concerns with this class 8th boy who asked question to Raghuram Rajan in this regard.  
Can we keep on being a watchdog and see if any the bankers in US, Europe or the middle east for that matter sneezed last night? More important, is it worth with respect to the Indian context? Lets face the truth, most of these developed economies are contended with themselves and may not bother much about India although the things are changing very fast and India is considered by many to be entering the big league soon. Any country has its own set of advantages as well as disadvantages and there are issues which are inevitable. This issues are beyond control.   
When most of the world economies are at tight spot, India seems to be the most lucrative option for the investor community. A recession does not necessarily mean erosion of wealth. It also means moving of wealth from one hand to another, And even if the “world” is on the verge of recession, India can be a safe haven for those who want to safeguard their cash.  
For quite sometime, fear is being injected by many analysts. We have see these “threatening”  topics in the past one year, namely, China, Crude Oil, Greece, Middle East Crisis, Global Recession to name a few and the stock market “gurus” keep on talking negative ultimately demotivating an aam investor. The irony is none of these had a major impact on our economy and it cannot have. We are led by Narendra Modi led BJP who have been known for mega reforms. Remember those 1.5 decade old epic days of Bharat Uday & feel good campaigns by Atal Bihari Vajpayee who was the face of BJP then. 
Most analyst fear that Raghuram Rajan exit will make Foreign Funds pump out billions of dollars of investments from India (a blog by an elite market analyst claims it to be 100 billion USD!). The reasoning given is that Rajan has a good credibility with the global investor community and some have even claimed that fund managers who happened to be his “colleagues” may not be happy with his exit. Really? Is this how big funds invest in a country? I seriously doubt.
Off course, there must be not denial about the fact that Rajan has done some really great work. For the past few years (and probably decades) many businesses have considered the state run banks as goldmine available on their backyard. Under the pressure of netas, state run banks are forced to give easy loans even to “sick” companies. With the politicians-businessmen-bureaucrats nexus, this malpractice has been going around shamelessly. Apart from the loss made by state run banks, the direct and indirect stakeholders (read victims) involve employees, taxpayers and investors, specially the small ones. Many debt ridden companies have eroded the investor wealth by up to 80%. Consider the companies (there are many small and mid cap companies) like JP Associates, Jaypee Infra, Unitech which are highly in debt. These were trading in triple digits few years back but now available in single digits! Even the investors of state run banks are facing loss. 
Rajan asked banks to be tight on companies which take a huge exposure to loans and succeeded in tackling this really bad issue. 
   
But here comes the challenge. Practically, the only way to get out of the bad debt for most of these debt ridden companies is to take more loan!  If they are not allowed to take more loans, or pressurized to repay ASAP, the situation would be similar to what we saw in Mallya’s case. If they are allowed to take more loans and fail to use them in a positive manner, it will further sink money of investors and banks (and in turn the taxpayer). 
This is a very tricky situation. We are stuck between the devil and the deep sea.  
With Rajan virtually giving a no-no to these companies, the chances of these defaulting big time has increased more. And this is not just about a few sectors. Most sectors globally are not performing well. From metals to oil to textile to real estate, there is a slowdown in market (but not a recession). In such a situation, easy loans could be a better option for companies. With Rajan himself declaring his exit, quite a large number of debt ridden companies headed north. It will be challenge for the Government to get an eligible replacement for Rajan but this is definitely not an impossible target. Moreover the policies of the government will pay off nicely.
Brexit is another media created “monster” which, as claimed by many, will suck the money out of India. Although there are concerns about it and currency games will come into picture making things difficult for India but this could be very positive for India in the longer run. If Brexit happens, the relations between the two parties(Britain and the remaining EU) will be strained. The negative vibes are already seen as some EU leaders warned Britain that if they choose to be out, they will be out forever! The trade between parties will reduce and India which is already luring global companies (with #MakeInIndia campaign leading from front) can find itself making a fortune out of this divorce.
For quite sometime, India has proved to be a genuine business partner as well as investment destination. The separation will also be economically bad for both parties(Britain and remaining EU) and outsourcing can be an option left to compensate for the losses. Moreover, many companies will have to change offices, factories or pay more tax on existing ones. Shifting to India might sound a better option for them.         
Rexit is done. Brexit may be negative for some Indian Equities but not on Indian Markets. Indeed with so much of negative news there will be short term impact on equities and broader markets but the great India story is already being written and there is no way for its failure. 
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An ardent observer of life’s visual rhythms & curious on the SOEs that take place in the cosmos, I jot down my mind occasionally on yet another universe of the Internet.

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