Experts say some multi-national companies (MNCs) can consider delisting from bourses if the government proposal to increase minimum public shareholding to 35 percent is formally introduced.
Finance Minister Nirmala Sitharaman proposed in her Budget presentation on July 5 to mull increasing minimum public shareholding to 35 percent from present 25 percent. Experts have been cautioning the investors since then.
“Each of the MNCs needs to be analyzed separately. Few of the large MNCs already have promoter stake close to 65 percent, so nothing changes. Possibility of delisting is high among those companies where promoter stake is very close to 75 percent thereby meaning that in those companies parent prefers higher stake,” Shailendra Kumar, CIO at Narnolia Financial Services told Moneycontrol.
“The possibility would be even higher if those are primarily B2B business not needing a larger public brand for better functioning of their businesses. Few of the MNCs will opt for delisting similar to 2010-13 when 25 percent of minimum public shareholding was introduced by SEBI,” he said.
Although none of the MNCs listed in India has commented on the proposal, the proposal puts stocks of 14 companies valued at more than $3 billion in focus.
They are: Whirlpool India, Wabco India, Timken India, Thomas Cook, Siemens, Hitachi Air, Honeywell Automation, HUL, Glaxosmith Pharma, Gillette India, GE T&D, Bosch, Abbott India and ABB India.
MNCs have been consistent performers despite market movement. Data from Antique MNC 40 Index suggests it has given consistent returns over a long period of time and outperformed Nifty in the last 11 out of 16 years.
Over a rolling five year period, MNCs have outperformed Nifty in all years since 2006 with lower volatility and thus generating superior Sharpe ratio.
The proposed regulation can’t be implemented at once, but in a phased manner; it would still remain an overhang on the stocks that could disrupt the performance going forward.
“In our coverage universe, MNCs such as Siemens, ABB, and Honeywell have promoter shareholding of 75 percent each. Typically, a timeline is stipulated for companies to increase the public float and in our view, this norm would be implemented over the next 3-4 years. The risk of a fresh supply of shares through Offer for Sale (OFS) could be an overhang on these stocks in the near-term,” Antique Stock Broking Ltd said in a report.
“Given strong business fundamentals of Siemens, ABB, and Honeywell, we continue to like the stocks and any correction should be seen as a buying opportunity especially where the valuations are attractive. We have a BUY rating on Honeywell and Siemens and HOLD on ABB,” it said.
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