While one set of multinationals seems to be hogging the limelight following exceptionally good results, another bunch of multinational companies (MNCs) seems to have perked up market sentiment in their respective stocks by simply announcing a raise in the stake by the foreign parent company or an intention to do so in their respective Indian subsidiaries.Kvaerner has just hiked its stake in Trafalgar House from 51 per cent to 65 per cent by picking up the undersubscribed portion of the latter's rights issue. Denso of Japan has also announced its plan of raising its holding in Denso India through the latter's on-going rights issue. Tudor India, the subsidiary of Exide Corporation, US, has hinted at the possibility of following the same route. BOC India had found similar support from the stock market a couple of months ago, once BOC of the UK had announced that it had hiked its stake in the company by picking up a portion of the undersubscribed rights issue.
Since then, however, support for the stock haswaned and this, perhaps, should act as a warning to the market at the present juncture.
Some smaller companies like RPG Ricoh have also suddenly found support in the market following the RPG group's announcement that it will be selling its stake in the company to Ricoh of Japan.
As for the leading multinational stocks, following the good results declared by some of these companies there seems to be a perception within market circles that MNC stocks should be the ones to watch out for.
Some FIIs buying into certain stocks simultaneously seem to have taken the theory further.
But while it is true that there has been a substantial improvement in the sentiment for shares of multinational companies, the improvement is selective enough to have become a trend in only pharmaceuticals and fast-moving consumer goods (FMCG) companies or basically marketing companies.
Castrol, which also announced record results, can also be clubbed as a marketing company as it derives its edge from its market responsiveness(product positioning and packaging) and marketing efforts.
What seems to be a surprising development is the buying in stocks like Nestle and Colgate India. Both these companies have shown a declining ability to maintain their returns in the recent past.
Nestle is facing a lot of competition in its coffee business, besides investing heavily in trying to increase its stake in the chocolate market.
That aside, the company has talked about significant capacity expansions which will surely lead to equity dilutions and in all probability a further hike in stake by the parent company Nestle SA. Nestle SA already holds 51 per cent in Nestle India.
In the case of Colgate, the first-half results showed margins to be slipping and overall growth rates and returns falling.
Even though there is little doubt that Colgate will be able to hang on to most of its market share despite intense competition from Hindustan Lever, margins will suffer.
Besides, a host of multinationals will report flat or poor earnings.ABB has already set that ball rolling. Glaxo has indicated a low growth performance. But companies like Siemens, Philips India and GEC Alsthom and a host of others will disappoint once again.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
