When it comes to employment, multi-national companies are a preferred lot because they are considered as cash-rich companies with strong fundamentals. They have a wider bouquet of businesses with their global presence. So, why not consider investing in them as the traits mentioned earlier make for an ideal investment as well?
In India, MNCs are present in sectors such as consumer, automobiles, industrial manufacturing, metals, information technology, cement and pharma, to name a few. When you hear the names of companies like Colgate, Hindustan Unilever, Nestle and Tata Motors, you know every single household is using their products. Then there are companies such as Castrol, Ashok Leyland, Bosch, Siemens, Hindalco and Ambuja Cement that cater to the industrial needs.
Let us consider what makes MNCs special and why they should be a part of one’s portfolio.
Wider moat
When you invest in stock market, you should look for a company with a competitive business moat that sets it apart. A moat represents the ability to stave off competition and to thrive in the market place. It could be in the form of strong brands, patent rights or low-cost manufacturing ability.
Robust management
This is one of the basic requirements one needs to look at when investing in a company. Strong management is the backbone of any successful company. It ensures corporate governance and operational efficiency, which ultimately leads to maximising shareholder wealth.
Technological edge
MNCs generally have good technical know-how, innovative engineering and production processes that give them an edge over peers. Consumers tend to prefer products manufactured by MNCs owing to their quality.
High RoE
Return on Equity helps identify well-managed companies by measuring how much profit a company generates from its total net assets. It ensures the efficient use of available resources. A high ROE is indicative of competitive advantage that separates them from their peers. MNCs usually stand atop on the RoE chart.
Strong fundamentals
Most MNCs tick the boxes when one analyses the fundamentals of the companies before investing. A strong balance sheet indicates a company has no significant debt, allowing financial freedom to fund operations, meet obligations and withstand negative surprises. It puts the company in a position to re-invest the capital into overall growth of the company. Besides, such firms offer high dividends.
Strong global brand
MNCs are characterised as having strong global presence by consistently promoting universally appealing messages that promotes a “global”culture.
Investing in MNCs
When it comes to investing into the MNC space, investors have the option of Indian MNCs such as Cipla, Infosys, Hindalco, Tata Motors and Wipro, and global MNCs listed in India like Grindwell Norton, P&G Hygiene & Healthcare and Cummins. Currently, there are a few mutual fund houses that offer MNC funds through which an investor can conveniently take exposure across MNC space.
One of the standout funds in this space is the ICICI Prudential MNC Fund. Apart from investing in Indian and global MNCs listed in India, the fund allows an investor to take exposure to global MNCs that are not listed in India such as Amazon, Bank of America and Ralph Lauren. Since markets around the globe perform differently each year, diversification to international markets may allow investor’s portfolio to take potential advantage from stocks listed outside India. As of August 2021, 20 per cent of the portfolio consisted of foreign equities. The fund has managed to outperform the benchmark since inception (June 2019). On a one-year basis, it has delivered 63.98 per cent as compared to 36.97 per cent by its benchmark, Nifty MNC TRI. Starting an SIP with a long-term view of at least 5 years would give you better risk-adjusted returns.