Benefits of Investing in Global Conglomerates Listed in India?
AIF & PMS Experts have recently put together a mind-boggling session with Mayur Shah (Fund manager of Anand Rathi PMS) in conversation with Mr Vikas Agrawal (MD & CEO, AIF & PMS Experts India). Mayur Shah has over 15 years of experience and he has been working with Anand Rathi since 2007. The webinar gives exclusive insights about investing in MNC portfolios. During the holding period, MNC companies provide healthy dividend and capital appreciation by earnings growth and sometimes carries an additional trigger for value appreciation in form of corporate actions like Open offers, Buybacks and Delisting etc. which usually adds substantial appreciation to the share price enhancing investors.
An Overview
The returns of MNC funds, which invest in multi-national companies, have consistently stood apart contrasted with other equity fund categories. Despite being thematic funds, their returns have been consistent across market cycles. Other sector or thematic funds like banking, pharma and technology see high volatility in returns. Over the long haul—10 years—the category has given 13.5% returns, higher than all other classifications. MNCs, where these funds invest, have better corporate governance standards, solid brand character and they are cash-rich. Their financials are better, and financial backers consider them as quality stocks. Due to all this, their returns have been consistent.
Investors usually look for similar attributes for funds that they want to keep at the core of their portfolios. They want funds that are consistent, protect the downside, and are well-diversified.
Why Invest in MNCs?
1. MNC’s benefit from the economy of scales by spreading R&D expenditures and advertising costs over their global sales, pooling global purchasing power over suppliers, and utilizing their technological and managerial know-how globally with minimal additional costs.
2. MNC’s can use their global presence to take advantage of underpriced labour services available in certain developing countries, and gain access to special R&D capabilities residing in advanced foreign countries.
3. MNC’s are generally rated high for their corporate governance standard.
4. MNC’s depict high transparency and accountability with well laid out policies and regulatory framework, internal control and risk management.
5. This provides good comfort for an investor who would not fall prey to any negative impact on investment due to corporate mismanagement and fraud.
Determinants of a Healthy Balance Sheet
1. High Operating Ratio – Most MNC’s have better-operating ratios compared to its peers, Operating margins would vary depending upon the sector it operates in.
3. Zero Debt or Low Debt Equity – Most MNC’s are zero debt companies or very low on Debt Equity hence changes in the Interest rate cycle do not affect these companies.
4. Positive Free Cash Flow – Operating free cash flow is positive in most of them, they are cash-rich and regular dividend-paying companies.
5. Healthy Return Ratio – Return ratio like ROE and ROCE are also high as compared to peer group in most cases. Investors benefit from share premium the share price command on sustain basis.
Portfolio Selection
Out of 4500 listed Company, there are only 90 odd MNC Companies which are owned by Foreign Promoter with more than 1000 cr Market Cap which make the stock universe limited for further evaluation
MNCs show growth like Multicap but Quality like Large Cap
• MNC PMS is a Multicap Portfolio with all market capitalization. (large, Mid, Small)
• There are many companies which by Indian Market Cap Definition are called as Midcap Companies
whereas by Global Definition these are Large cap.
• One gets benefit of growth like Midcap Companies in India where as Quality of Large Cap. Few Eg given below
Pfizer
• Midcap in India
• Biggest Pharma Company in World
3 M India
• Midcap in India
• Part of Dowjones 30 index
Bata India
• Midcap in India
• 125 year old Company operates in 70 Countries
NIFTY MNC Index Analysis/Study
A study done on the Nifty MNC Index which constitutes 15 stocks shows favourable risk-reward a portfolio of MNC Company could deliver
NIFTY MNC Index has good correlation with NIFTY 50 Index. However the Beta stands at 0.8 Annualized returns of NIFTY MNC Index is higher compared to NIFTY 50 Index and Volatility is lower. This shows a favourable risk reward for NIFTY MNC against NIFTY 50 Index. To conclude, it is prudent for investors to seek investments into global conglomerate space and international diversification which definitely aids in managing risk and positioning your portfolio for long-term growth.
Disclaimer – https://aifpms.com/disclaimer/
Also Read – Investing Globally For Creating Permanent Bull Market Portfolio