Aug 17: The MNC wave on the stock markets is receding. Poor first-half results announced by five leading multinationals coupled with SEBI's notice to Hindustan Lever and the government's decision to slash prices of some bulk drugs have taken the sheen off the hitherto fancied MNC stocks, at least in the short-term.

Despite a 40 per cent rise in Hindustan Lever's first-half net profit to Rs 256.28 crore, the scrip has shed almost 7 per cent in six trading sessions after it was served notice of insider trading by SEBI. From a high of Rs 1,559 on August 6, the scrip fell to Rs 1,462 on the Mumbai Stock Exchange as the company tried to grapple with the situation. The all-out efforts made by the company to defend itself against the charges levelled by the market regulator failed to impress investors, who clearly steered away from the stock. Until a final decision is taken, sentiments in this counter will remain bearish.

More than the HLL news, it was the disastrous performance by Cadbury India which took the investors by complete surprise. For the half-year ended June 1997, the company reported a 36 per cent drop in net profit to Rs 6.18 crore from Rs 9.64 crore in the corresponding period of the previous fiscal. The fall in net profit despite an 18 per cent growth in net sales is attributed to the high promotional charges as a result of the intense competition in the food and dairy products segment. The scrip was hammered down to Rs 314 from Rs 352 in just three trading sessions on the Mumbai Stock Exchange. While the expansion drive and launch of new products is sure to boost volumes, margins are likely to remain under pressure.

Rival Nestle's first-half net profit has stagnated at Rs 22.3 crore despite a 22 per cent rise in turnover to Rs 624.6 crore. In a single trading session on BSE, the scrip shed 5 per cent to close at Rs 282. The fall is expected to continue after the markets reopen on Tuesday. The Thomas Cook scrip crashed by Rs 70 to Rs 900 on BSE after the company announced an unimpressive performance for the first-half ended June 1997. While the net profit declined by 9 per cent to Rs 7.01 crore, income from operations dropped by almost 8 per cent to Rs 25.47 crore. The fall in Goodyear India's first-half turnover from Rs 268 crore to Rs 265.8 crore may also spark off a selling pressure in the counter after the markets reopen on Tuesday.

The government's decision to slash the price of ranitidine and some other bulk drug prices has taken its toll of pharma MNCs. Glaxo, which derives 11 per cent of its turnover from anti-ulcerant formulant, lost 4.73 per cent or Rs 22.5 on the National Stock Exchange on August 13 when it closed at Rs 453.20. On BSE, the scrip shed 6 per cent in three trading sessions.

For investors who had stayed out of the rally, the MNC meltdown could be a blessing in disguise, at least in some cases like Glaxo. The reaction in MNC stocks should given long-term investors an opportunity to enter now.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.