Surprise, surprise -- MNC stocks take a beating

Suresh Krishnamurthy

IT IS BELIEVED that the Indian associates of multinational companies enjoy a much better valuation at the bourses than Indian companies in the same line of business.

A few MNC-focussed mutual fund schemes also quoted factors such as professional management, transparency and strong support from their overseas parent companies to justify the focus.

However, since April 1999, the stock market has demolished this perception. MNC stocks took a beating over this period, losing their premium valuations. Even stocks such as Hindustan Lever, Britannia, Indian Shaving Products and Procter and Gamble underperformed the market indices.

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While the Sensex is not yet down to the lows of April 1999 or December 1998, several MNCs fell far below the levels of April 1999. This is evident from an analysis of the performance of the BL-250 sectoral indices in this period. Between April 1999 and October 2000, the MNC sector index was down 16 per cent while the BL-250 was up 34 per cent -- an under-performance of 50 per cent. Sectors such as agri-business, consumer confidence and capital goods, all populated by MNC stocks, shed even more value.

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MNC stocks were not the only ones to lose value during this period. But it is surprising that the once celebrated companies now top the losers chart. With the exception of technology players; companies in healthcare and fast moving consumer goods and services; and a handful of firms in the manufacturing sector, most Indian companies also lost value.

The market capitalisation of the BSE and the NSE are now down to levels below that of November 1999. If adjusted for the contribution of technology stocks, which appreciated 150 per cent over this period, the extent of under-performance of the other sectors, including MNCs, is evident.

Missing out in mid-1999

Between end-April and mid-October 1999, stocks of economy-linked sectors, popularly called value stocks, ruled high on the bourses. Software, healthcare and FMCG companies, however, remained depressed. Given that the economy was expected to perform quite well, the apathy to growth and defensive stocks was understandable.

Software stocks, however, started recovering from September 1999, rising rapidly to touch their peaks in February 2000. In the healthcare and FMCG segments, only Indian companies attracted investor attention since October 1999. MNCs, a majority of which missed out in the April-October 1999 phase, continued to languish until February 2000.

After February, most of them awakened from their slumber, but moved in the other direction and plunged further down in March, though they did recover after April. Also, their decline since April was less than the market indices. However, the under-performance during the April-February period proved costly for investors in these stocks.

Topping the MNC losers' chart are Cyanamid Agro, Bayer India, Bata India, Aventis CropScience, Fulford India, Vashisti Detergents, Ingersoll Rand, ICI India, Burroughs Wellcome, SmithKline Pharma, BASF, Wartsila NSD and Thomas Cook. Major losers are companies from the agri-business, consumer goods and capital goods sectors. Among the handful of MNC stocks that bucked the trend are Gujarat Gas, Birla 3M, Siemens, Cadbury India, Kodak India, Pfizer, Alfa Laval, Cummins and Nestle.

Indian companies also lose

If MNCs led the losers' list, most Indian companies were not far behind. The only saving grace for Indian companies in the manufacturing sector is that they had a brief time in the sun in April-October 1999. From October 1999, these stocks received a battering reminiscent of what happened in 1996 and in 1998.

Consumer durables majors, such as Voltas and BPL, top the Indian losers' list. The others were mostly from the automobile, hotel and PSU sectors. In the auto sector, the major losers were Tata Engineering, Punjab Tractors and Bajaj Auto, and ancillaries such as MRF, Gabriel India, Swaraj Engines and Exide India. Indian Hotels, Oriental Hotels and Asian Hotels, also shed considerable value. PSU sector stocks, including BHEL, MTNL, ONGC, Kochi Refineries, and Chennai Petroleum Corporation; and PSU banks such as SBI and Bank of India also declined steadily.

However, between April 1999 and October 2000, valuations in the bank/FI and the commodity goods sectors generally improved significantly. Private sector banks, such as ICICI Bank, HDFC Bank; paper companies, such as ITC Bhadrachalam, Ballarpur Industries; and petrochemical major Reliance Industries and group company Reliance Petroleum were some of the prominent gainers.

Stocks of companies engaged in restructuring, such as Raymond, Tata Electric Companies, Godrej Soaps and Tube Investments, also saw their market value rise. Topping the list of gainers were Amtek Auto, Apollo Hospitals, Hikal Chemical and Jaiprakash Industries.

Even in these stocks, the restructuring of their existing operations appeared to catch investor fancy. Stocks of Indian healthcare companies, such as Sun Pharma, Ranbaxy, Cipla and Dr. Reddy's; FMCG companies such as Nirma and Dabur India; and paints majors Asian Paints and Berger Paints also recorded gains. The performance of Indian companies in these sectors is in marked contrast to their MNC counterparts.

Technology on the mat

Predictably, the major gainers between April 1999 and October 2000 were from the technology sector. Stocks such as Himachal Futuristic, Global Tele-Systems, Shyam Telecom, Valiant Communications, Gramophone Company of India and Hinduja Finance top the list. A significant majority of these stocks find a place in the portfolio of mutual funds. Returns on these stocks were generally above 100 per cent. For the toppers, the gains are over 1,000 per cent. Infosys, Satyam, Wipro notched gains of around 300 per cent.

However, since February, these stocks began losing value. The BL-250 sectoral index lost 51 per cent since February. The technology index during the same period shed 67 per cent. To put things in perspective, in February, the BL Technology index gained an astronomical 638 per cent over the April 1999 level. By October 2000, the gains over the April 1999 levels were pared down to a more modest 140 per cent.

Sectorally, none of the sectors gained in value since February 2000. Stock-wise, however, more than a handful were able to reverse the trend. Bombay Dyeing, Ballarpur Industries, Adani Exports, GE Shipping, HDFC, EIH, Raymond, ITC Bhadrachalam, Tata Electric Companies, Carborundum Universal, Hero Honda and Motherson Sumi were some prominent gainers. Among MNCs, Cadbury, Nestle and Gujarat Gas were at the top of the heap in returns, while Esab India, Britannia and Pfizer weathered the fall well.