Prime Minister Boris Johnson winning an overall majority for his Conservative Party in Parliament is presumably a positive outcome for stock markets and more specifically to Indian companies relying on their earnings from that part of the world.
The optimism stems from the fact that the Brexit is more certain, putting an end to speculations, and allow these companies to develop strategies accordingly.
A lot has been online steroids shop talked about companies such as Tata Motors, HCL Tech, etc facing adversaries from their exposure to the UK.
Finally, Brexit is certain now. Earlier, there was a question mark over whether and when. Now it will happen and that needs to be evaluated.
One has to see how the derisking plays out because whatever manufacturing companies do in the UK, they benefit if the pound is weak because it is export but if the pound is strengthening so much in the near term, it could actually hit margins for Tata Motors.
So the end of uncertainty play creates an uptick, but fundamentally, it has to be more closely evaluated.
However, from the fundamental point of view, for Tata Motors the US-China trade deal and a bottoming of the Chinese economy, will be more beneficial to JLR rather than Brexit itself.
If China’s demand starts to pick up a bit, that could actually be more beneficial.
After election results, the companies now need to plan for operations in the UK as a separate economy away from the European Union.
To that extent, it will be disruptive in the short run.
Once Brexit happens, next three-four months after that could be very disruptive especially for companies but from Indian companies’ perspective, it might not be so disruptive because you do not really have any cross border from Europe to the UK but for the overall economy out there, it could be disruptive.
Overall. if the US-China trade deal happens and the US dollar continues to weaken, that will have an impact on trade next year.
The commodity stocks could do well and to that extent, Tata Steel could do well.
It is very tough to play on Brexit. The contours of how exactly Brexit will happen, whether the deal will undergo some changes, if there is a very strong majority for Boris Johnson, will there be some renegotiation, etc.
Net net we expect a short term bounce in stocks like motherson, tata motors, mastek, TCS and tata steel while long term trends will depend on how the business conditions pan out in this market post the Brexit which in all likelihood is expected to get implemented ahead.
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