Investors turn to MNCs amid governance, poll concerns

In the current market conditions with concerns over corporate governance issues in many companies and elections around the corner, several wealthy investors have turned to multi-national companies (MNCs) to play it safe.

Top MNC stocks, such as Pfizer, Astrazeneca Pharma, Nestle India, Yuken India, Abbott India, Oracle Financial and Sanofi India, have gained between 5 per cent and 15 per cent in the past month when most other stocks declined sharply.

Sensex, on the other hand, gained just 2 per cent during this period while BSE Midcap and Smallcap indices fell 5 per cent and 6 per cent, respectively.


It’s logical to peddle multinational stocks when domestic stocks are rife with corporate-governance issues and volatility, say analysts.

“Investors find comfort in MNCs when there are crises in domestic stocks. They are not only governed well but also are answerable to foreigner regulators,” said Ajay Bodke, CEO (PMS), Prabhudas Lilladher. “Additionally, the MNCs are getting premium on their clean balance sheet, good dividend payout ratio, less or no debt and high level of transparency”.

Retail investors have increased their stake by 1.1 per cent in Kennametal India during December quarter. The stock rallied nearly 45 per cent in the past three months. Similarly, Seamec shares surged nearly 30 per cent in the past three months,and the retail holding increased by 1.05 per cent.

Retail investors have also increased their stake in Federal-Mogul Goetze, Nestle, CRISIL, Orable Financial, Disa among others in the December quarter.

“Bad corporate governance doesn’t just hit the headlines, it impacts the bottom-line of the companies even more,” said Abhay Laijawala, MD, Avendus Capital Public Markets Alternate Strategies LLP.

“While MNCs do tend to perceived as well governed, there are Indian companies which are ranked equally well on governance.”

Several domestic companies are prone to political risks ahead of elections. Some of the political decisions will prove to have adverse effects on corporate profits. As most of the multinational companies are consumer centric, political risk is lesser, said analysts.

“MNCs are minimize exposure to political risk and elections are around the corner, its prudence to look for MNCs as a defensive bets” said Paras Bothra, head of research, Ashika Stock Broking. “Also, most of the MNCs are best bets in terms of dividend yield”.

Nifty MNC index yied is 2.98 per cent currently compared to 1.47 per cent of Nifty.