MNCs outshine market, return 400 bps more in last 6 months

Mumbai: Over the past six months, multinational companies (MNCs) have outrun the broader markets by more than 400 basis points in yielding returns. This outperformance is likely to continue, as MNCs gain market share and report solid earnings growth, justifying the premium these stocks traditionally command.

Siemens, Honeywell Automation, Bata, Pfizer, Sanofi, Bayer Cropscience, Grindwell Norton and Timken can still offer 20-40 per cent returns in the next two years, said analysts.

“Given the outperformance, MNCs are now trading near the mean premium valuation. Going ahead, favourable industry tailwinds are likely to help MNCs to structurally deliver accelerated earnings growth over a medium to long term, leading them to trade at premium valuations relative to Nifty 50,” said Dhirendra Tiwari, analyst, Antique Stock Broking.


Some of the MNCs such as Linde India, Astrazeneca Pharma, Abbott India, Pfizer, Whirlpool of India, Siemens and Wendt India have rallied between 20 per cent and 40 per cent in the last six months.

“We prefer stocks which are high on quality — HUL, Nestle, Bosch, Colgate, Siemens, ABB India, P&G Hygiene in large-caps; Gillette India, Honeywell Automation and GSK Pharma in midcaps; Pfizer, Sanofi, SKF India, Cummins, Grindwell Norton, Timken India, Johnson Controls, Linde and Kennametal in smallcaps,” said Tiwari.

Over a rolling five-year period, MNCs have outperformed Nifty 50 in all years since 2006 with lower volatility and thus generating superior Sharpe ratio, which measures the risk-adjusted returns of a portfolio of financial assets.

Currently, the Nifty MNC index is trading at 23.7 times 1-year forward PE, which is slightly above its longterm mean valuation of 22.4x.

“Quality carries a premium. That’s quite evident in the high valuations commanded by companies with high-quality management and pedigree,” said Gaurav Dua, head – Capital Market Strategy & Investments, Sharekhan. “Many of the MNCs in India operate in consumer and pharma sectors and perfectly fit the criteria of steady growth and quality management. Thus, investors in multinational companies have done pretty well over a longer period of time.”