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COVID-19 presents an opportunity to invest in MNCs; 18 firms worth looking at

MNCs are usually well-capitalized with low debt exposure and good dividend policies. Most of the MNCs have market leadership in their category of operations and strong brand equity.

May 11, 2020 / 03:50 PM IST

The COVID-19-led price correction in stocks presents a unique opportunity for Indian investors to invest in the Multi-National Corporations (MNCs) listed in India, Standard Chartered Securities India Limited said in a report.

The strong parentage backing and strategic shift of their production base to India presents a unique opportunity for long-term growth.

The international brokerage house is of the view that MNC companies tend to outperform the broader market over a long period as evidenced by the comparative study between the Nifty MNC index and prominent benchmarks.

“We have filtered our MNC universe of 43 stocks basis profitability ratios (ROE & ROCE) higher than 15 percent for the past three fiscal years. There are 18 stocks which fit the criteria and that include names like Blue Dart, Akzo Nobel, Abbott India, Cummins India, HUL, Castrol India, and OFSS, etc. among others,” said the note.

Why MNC?

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MNC’s are professionally driven by strong corporate governance. They are known for their technological proficiency and asset-light business models.

Standard Chartered Securities India is of the view that in the post-COVID world, business models of MNCs are likely to lead the growth backed by innovation and faster adoption to changing consumer behaviour.

MNCs are usually well-capitalized with low debt exposure and good dividend policies. Most of the MNCs have market leadership in their category of operations and strong brand equity.

The report highlighted that MNCs are also likely to be key beneficiaries of structural changes such as formalisation of the Indian economy, the abolition of the Dividend Distribution Tax for corporates (as proposed in the recent budget), and India’s quest for Make-in-India to be successful.

MNC Outperformance:

Historical evidence suggests MNCs companies have delivered superior returns over a long-term period, said the note.

The MNC companies have also outperformed the broader market benchmarks over a longer period. Over a five-year period, the Nifty MNC has outperformed the Nifty50 index by 1.5 percent CAGR and the BSE 500 by 1.8 percent CAGR.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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