UK polls: On likely scenario when “May” may not be, sectors that Indians could avoid

Britain's Prime Minister Theresa May speaks during an election campaign event in Bradford, Britain, June 5, 2017. REUTERS/Phil Noble - RTX39625

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26 Aug, 2025 12:21

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Anubhav Sahu
Moneycontrol Research

UK poll results declared so far this morning point to a hung parliament, as was predicted by many opinion polls and the exit poll. Global markets have been mostly indifferent as they are still figuring out the implications. S&P 500 futures is marginally up; Nikkei is positive, Hang Seng, Sensex marginally down. However, UK financial market barometers are showing signs of worry- though FTSE futures is marginally negative, GBP/USD is down about -0.8 percent.

Hung parliament or at best a thin majority scenario

At the time of publishing, Conservatives have won 310 out of 641 seats declared with 42 percent votes. Vote percent is more or less on expected lines. But it has improved for Labour party (40 percent vs 35-38 percent expected). However, Conservatives can still reach the working majority (Conservative MPs less all other parties, excluding the Speaker, two deputy Speakers and Sinn Fein MPs.). It should be able to tie up with the Democratic Unionist Party or Liberal Democrats and form the government depending on the final tally. Still, it is bad news for Theresa May herself – her clout diminishes and a leadership change is on the cards.

Brexit Implication
Political uncertainty would first have an impact on the time line, process and the possibly terms of negotiations. A leadership change on the UK side would obviously delay the negotiation talks. Depending on political compulsions within party and coalition partners, the hard stance UK had taken so far for Brexit terms might soften. In general, it means more uncertainty in the near-term.

GBP/USD is expected to drift lower in this scenario. FTSE 100 may still benefit from currency depreciation as it constitutes companies having 2/3rd of the earnings from exports.

Global markets may not react sharply and probably wait and understand the implications of revised UK stance on Brexit negotiations.

Indian market: Sectors, companies to watch for
In our earlier note on the UK election, we had highlighted UK election as the event risk and had advised hedging the currency exposure.

IT, automobiles, textiles, gems and jewelry, metals and mining sectors are among the key sectors to face some impact from the sharp move in the Pound Sterling.

IT, which continues to deal with the challenges from Brexit and immigration woes in the US, will be most sensitive to economic recovery and currency movement in UK. For the Indian IT industry, 28 percent of the services are exported to Europe, with UK constituting around 17 percent. A depreciation in the pound would further dent export revenues. In terms of corporates, Infosys has relatively lower revenue exposure denominated in pound (7 percent) and euro (9 percent) compared to its peers TCS and Wipro. Tech Mahindra has relatively higher exposure to the British currency.

Coming to the auto sector, the UK and EU account for about 4 percent and 16 percent, respectively of automobile export from India. Among the major companies are Mahindra CIE, Bharat Forge and Motherson Sumi.

They have revenue share ranging from 40 percent to 65 percent coming from Europe. As far as Tata Motors is concerned, impact on the JLR business (around 40 percent of JLR’s exports are in dollars) in medium term depends on Brexit negotiations and trade restrictions within Europe.

Indian gems and jewellery exporters are another segment to look at. They import rough diamonds from the UK and exports precious gems and jewels. UK accounts for about 10 percent of India’s gems and jewellery exports (USD 40 billion). However, most of the billing for the imports are done in dollar terms, so the impact is relatively less. However, for the sector, a matter of greater concern is the prospect of reduced demand due to relatively weaker economy.

Among metals and mining, Tata Steel and Hindalco are amongst those having a substantial and direct exposure to UK. In addition, the pharma sector has about 4 percent exports to UK.

Overall there are range of sectors and companies which could be impacted by sharp currency moves. Having said that, medium-term trajectory for the currency depends on inflation expectations, BoE’s assessment of the economy and the Brexit negotiations.

Follow @anubhavsays