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When it comes in employment, multinational companies are favored because they are considered to be cash-rich companies with solid fundamentals. They have a larger business mix thanks to their global presence. So, why not consider investing in it, as the previously mentioned features are also an ideal investment?
In India, multinationals are present in sectors such as consumer, automotive, industrial manufacturing, metals, information technology, cement and pharmaceuticals, to name a few. When you hear the names of companies like Colgate, Hindustan Unilever, Nestlé and Tata Motors, you know that every household uses its products. Then there are companies such as Castrol, Ashok Leyland, Bosch, Siemens, Hindalco and Ambuja Cement that serve industrial needs.
Consider what makes multinationals special and why they should be part of a portfolio.
Wider ditch
When investing in the stock market, you should look for a company with a competitive business divide that sets it apart. A gap represents the ability to avoid competition and thrive in the marketplace. This can take the form of strong brands, patent rights, or low-cost manufacturing capabilities.
Robust management
This is one of the basic requirements to consider when investing in a business. Sound management is the backbone of any successful business. It ensures corporate governance and operational efficiency, which ultimately leads to maximizing shareholder wealth.
Technological advantage
Multinationals generally have good technical know-how, innovative engineering and production processes that give them an edge over their peers. Consumers tend to prefer products made by multinationals because of their quality.
High RoE
Return on equity helps identify well-run businesses by measuring the profit a business generates on its total net assets. It ensures the efficient use of available resources. A high ROE is indicative of a competitive advantage that separates them from their peers. Multinationals are usually at the top of the RoE chart.
Solid fundamentals
Most multinationals tick the boxes when analyzing company fundamentals before investing. A strong balance sheet indicates that a business does not have significant debt, which gives it the financial freedom to finance its operations, meet its obligations and resist unpleasant surprises. It enables the company to reinvest the capital in the overall growth of the company. In addition, these companies offer high dividends.
Strong global brand
Multinationals are characterized by a strong global presence by constantly promoting universally appealing messages that foster a “global†culture.
Invest in multinationals
When it comes to investing in the multinational space, investors have a choice between Indian multinationals such as Cipla, Infosys, Hindalco, Tata Motors and Wipro, and global multinationals listed in India such as Grindwell Norton, P&G Hygiene & Healthcare and Cummins. Currently, there are a few mutual fund companies that offer MNC funds through which an investor can easily gain exposure through the MNC space.
One of the most notable funds in this space is the ICICI Prudential MNC Fund. In addition to investing in Indian and global multinationals listed in India, the fund allows an investor to gain exposure to global multinationals that are not listed in India, such as Amazon, Bank of America and Ralph Lauren. Since markets around the world behave differently each year, diversification to international markets can allow the investor’s portfolio to take advantage of the potential of stocks listed outside of India. In August 2021, 20% of the portfolio was made up of foreign equities. The fund has managed to outperform the benchmark since its inception (June 2019). On a one-year basis, it delivered 63.98 percent versus 36.97 percent by its benchmark, Nifty MNC TRI. Starting a SIP with a long-term view of at least 5 years would give you better risk-adjusted returns.
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