Investing In MNC Stocks

Though MNCs shock shareholders occasionally as when they decide to delist or pay hefty royalties, they have always rewarded investors handsomely. In fact, MNCs have been wealth creators for investors across time cycles. Even in turbulent times such as the last three years ended March 14, the CNX MNC index has returned 7.93% compounded annual growth rate (CAGR) against 5.55% CAGR returns generated by CNX Nifty. That is why MNC shares are good for long term investments.

There are some corporate governance issues in this space. But the management quality is good and investors  can consider MNC shares for investment with a three-year time frame.

The CNX MNC index consists of eight different sectors that fall in both — defensive and cyclical segments. Defensive include FMCG, IT and pharma whereas cyclical include metals, industrials, chemicals, consumer discretionary. Defensive MNC stocks do well on the bourses in tough economic times when the overall economic growth is anaemic. Cyclical stocks  suffer  during low-economic growth. So investors can invest in MNC cyclical stocks during downturns to harvest a gain when recovery takes place. 

Many MNC stocks apart from the capital appreciation, also offer liberal dividend payouts.Also some triggers can offer incremental returns. For example a foreign parent can increase the stake in an Indian company. Also there are some cases of delisting. Many of these MNCs listed in India are promoted by global giants and leaders in their business. As they sense superior growth outlook of the Indian economy, there is a high possibility the promoters choose to increase their stake, effectively keeping the stock prices firm.

So should you buy MNC stocks now?High valuations are a concern and these shares will continue to quote at high valuations, given the growth expectations from these companies. So, the recent run-up in the markets does pose a timing risk for investors. So you can invest 25-30% of the money you want to invest in an MNC portfolio now and buy the remaining on corrections. Else you can go the SIP route into two schemes dedicated to MNC stocks — Birla Sunlife MNC Fund and UTI MNC Fund — and they have a long-term record of beating the benchmark. MNC is a broadbased theme and offers well-diversified exposure to investors, compared to many other sectoral investment ideas.