In a crucial referendum, the United Kingdom has voted to leave the European Union. Markets and currencies across the globe are staring at a risk. Bloomberg TV India discusses the impact of Brexit with Ramesh Damani, member, BSE.

What is your first reaction to the Brexit?

It is pretty much a done deal. This is probably going to be a very long day not only for Britain and the EU, but also for the for financial markets across the globe. It is going to be a very, very long day, a very, very long summer for the rest of the year.

In terms of the derivatives data, we were seeing that 8,000 was a very strong and critical level of support. We have already breached that. How much of a downside do you see? Do you see the long-term structural story still remaining intact? Is this still a buy-on-dips market after the kind of deterioration we have seen? What is the worst case you are factoring in post the Brexit, in terms of our own markets?

I do not want to give false opinions that we buy the debts for you and stand against the crowd. I think we need to have a more patient approach as to what is taking place in the world.

There have been some suggestions in the markets, in media. A lot of analysts say we are going to give a rise to gold; we are going to give a rise to the bund market. But I am not listening to that camp.

Because how much gold can you buy? At the end of the day, you can put 2-5 per cent of the asset in gold. It is a very non-productive investment. There could be a spike in gold, but I do not think the world wants all gold at this point in time.

Second, we already have $10-15 trillion of negative bonds going on in the world. The Germen bond is going in the negative. How much money are you going to put to use money? That does not make any sense.

So money will of course come back to equity after the cooling off period. But the question is, ‘Where does it go?’. Does it flow to America? Does it flow to India? Does it flow to some other country in the world?

I hope that with the passing of the GST Bill and with a good monsoon, we will at least get good foreign inflows. So I am quite hopeful that the situation will emerge. But it will take some time.

As we are entering an uncharted territory and things are looking uncertain on the global front, what kind of impact do you see on the capital outflows from India and other emerging markets?

Let me give some perceptive. In 1992, George Soros broke the Bank of Britain and the pound was devalued. At that time, it was a ‘Black Wednesday’ in the UK equity market.

As the interest rate came down in Britain, the currency depreciated and exports picked up. This resulted in a revival of manufacturing activities in the UK.

Unfortunately, it is not going to happen this time. Because the interest rate is already low and that can’t be brought down further without setting the stability of the UK’s banking situation. And because of the uncertainty, no fresh investment is going to come. So the UK and the rest of the Europe, perhaps, are in a back hole.

At the same time, inflation is coming down in India; the interest rate is real and we have a list of reforms — from FDI to GST — that are going to start picking up, and we have a sound domestic infrastructure base.

Investors are fairly buoyant on India and they want to bet on India. My sense is that money — both domestic and foreign — will start coming into India after a certain degree of pause.

I think the market will have a kneejerk reaction. While this is a very traumatic day for the financial market, I think money flows will resume after a period of time.

Can we say that the contagion impact will be limited and that we are entering a prolonged period of global uncertainties where markets will find their level once they have the time to digest the shock?

Prime Minister David Cameron has announced his resignation and will have to invoke Article 50.

At the end of day, a political crisis is taking place in the UK. It is not just an economic crisis. So there are political answers to it. Of course, the central bank will be on the watch and they will be using liquidity as required for the market.

But I believe that the economic situation in India will tend to grow and people will find great domestic inward focus which is consumption- and service-oriented, and that will do well in this economic environment.

As the US elections near, there is a possibility of Donald Trump becoming the President. To what extent, even from India’s standpoint, should we keep an eye out on some of these developments? Because as we have seen today in financial markets, we are reacting, even if kneejerk, to some of these kind of surprising decisions.

That is exactly my biggest fear right now. Children of post-Independent India or post-World War II have grown up in a world which is increasingly interdependent, increasingly credible; a world with increasing free flow of people and ideas from one country to another.

After the fall of the Berlin Wall, there has been one model of economic development: outward trade, prosperity rising, GDP growing. But what the UK has done is a choiced idea of globalisation.

I think they say, ‘We want to be in a corner in North Atlantic’. Trump in America is saying the same thing. He does not want to be a part of NAFTA. He does not want to be a part of the TPP. He does not want to be a part of even perhaps NATO.

If politics is on the right — which increasingly want to isolate the community, to move away from a world that became so much more prosperous thanks to open trade, open borders and freedom of movement — it strikes the heart of what has been fuelling the prosperity for the last 50 years.

Who knows, if Trump gets elected, there will almost be a red flag for open trade and open borders. I am still hopeful that with Trump being such a weak candidate Americans will not let that happen.

But it is a political problem in the UK. Tomorrow it could get exaggerated by the Spaniards, the Scottish and of course the Americans. If the political crisis unfolds, the world will live though a very, very tough economic period.

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