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Wednesday, June 29, 2016

Is BrExit offering a good stock-picking opportunity? - a guest post

The BrExit referendum was expected to be a close contest between those who wanted the UK to 'remain' within the Eurozone and those who wanted the UK to 'exit'. The actual result was unexpected. 

Actually, UK was never a fully integrated part of the Eurozone - as they maintained their own currency and visa system. A large number of those who voted for BrExit may have been duped by politicians into thinking that the 'leave' vote was an 'anti-immigration' vote.

The legal negotiations between UK and the Eurozone will start now to make the referendum a reality. That will take till the end of calendar year 2017. Nothing has actually changed on the ground yet. Still, stock markets over-reacted on the downside.

And therein may lie an opportunity. In this month's guest post, Nishit identifies some industry sectors that are unlikely to be affected whether UK eventually leaves the Eurozone or not.   

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BREXIT has happened and the world is behaving as if it is about to end. The stock markets are correcting and this is a time to add several good stocks.

What is BREXIT? It is simply the UK leaving the European Union. All trade agreements made with the EU will not be valid after 2 years (from the date when the UK triggers the Exit clause). Fresh trade agreements will have to be put in place with the UK.

Now, there are several sectors which could be affected, viz. the IT sector as also export dependent sectors like pharma, textiles and auto-ancilliaries. What will happen is that the currency market will be in a state of flux. The Pound will get weaker and the US Dollar will get stronger with safe haven demand. The US will try to devalue the Dollar for its exports to remain competitive.

International Trade will face some hiccoughs. At the same time, there are several sectors which are not dependent on exports. They are purely domestic consumption stories. These are Sugar, FMCG, Packaging and sectors whose products are mainly consumed in India.

A safe bet during these turbulent times would be to focus on sectors which have less exposure to exports and are more focused on the domestic markets. India’s growing middle class will continue to consume, and there will always be demand for soap, hair oil, cooking oil, toothpaste, biscuits, cigarettes, liquor.

Also, with news of a good monsoon, rural demand will pick up. Two wheeler and tractor manufacturers will be in demand. Last 2 years have been drought years so many farmers have not changed their equipment for a substantial time now. A good harvest can led to increase in rural demand.

The Power Sector also is not dependent on external factors ever since Coal India made plentiful coal available. When the markets fall, everything falls and this is a good opportunity to focus on such stories which are not affected by BREXIT.

Such falls give the best buying opportunities. Remember the 'GrExit' drama in August 2013 when the Nifty hit 5118. Those who bought then doubled or tripled their money.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money ManthanYou can reach him at nish.stockid@gmail.com)

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