For MNCs, the local scene hotting up?

MNCs command a higher valuation in India through their domestic subsidiaries. In majority of cases, local ops of these MNCs are a fraction of their total business, but still command premium stock multiples. While it draws from the higher growth potential of the domestic economy in the long run, does it also signal an overheated equity scene? Historically, MNCs with a direct consumer connect, as in the case of FMCGs and pharma sectors, usually prefer a public listing of their local arms to establish a sense of belonging. After all, a listed company would abide by local regulations and distribute dividends depending upon its expansion plans and capital requirement, thereby making shareholders a part of its growth journey.

On the other hand, some MNCs with no specific need of external funding often stayed away from local capital markets to avoid operational complexities. This conventional wisdom may now be challenged by the lure of high valuations and improving regulatory aspects in the domestic market. Recent times have seen a few MNCs like Carraro, Hyundai and LG making a beeline to the primary market after spending decades running local operations.

It may still be too early to predict a spate of global companies vying for an India listing. Notwithstanding the country's rapid economic expansion, several MNCs - GM, Ford and Holcim, to name a few - have exited India in the recent past. It will take more than stock market rallies for a country to attract long-term foreign capital. Instead, it will necessitate committed efforts to improve ease of doing business by scripting conducive policy measures across the board. Concerted efforts in that direction would go a long way in justifying the growth premium India seeks, and would also provide an assurance to global investors dealing with the dilemma of picking up a stake in the expensive emerging market subsidiary of an MNC.