Moneycontrol Pro Panorama | The premiumisation of the Indian stock market 

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Multinational companies (MNCs) listed in India have traditionally commanded a premium over their domestic counterparts within the same industry. This premium valuation has been attributed to superior management quality, product standards, and limited free float, among other factors. As the market continues to surge to new heights, these stocks have also witnessed an upward trajectory, maintaining their premium status to some extent.

The big differential, however, is with their parent company. Some of these stocks are trading at a premium in valuation and value terms to their parents. A key reason for this difference is the growth in the two markets where they are listed. Indian markets offer higher growth rates and better profitability, thus justifying a premium.

Recent reports indicate that domestically listed MNCs are trading at forward price-to-earnings (P/E) and price-to-book (P/B) multiples ranging from 2.1x to 6x higher than their parent companies.

This premiumisation trend has led to two notable outcomes. First, parent companies are capitalising on the rally by divesting their stakes in these MNCs. Second, foreign companies are eyeing listings in the Indian market, particularly those with a significant local presence.

For instance, Whirlpool Corporation of the US recently sold nearly 24 percent of its stake in its Indian subsidiary for approximately Rs 3,881 crore. Data reveals that eight companies have witnessed similar stake sales by their parent companies, totalling Rs 12,171 crore. Notable among these are GMM Pfaudler, Timken India, Wabco India, Samvardhana Motherson, Thomas Cook, and INEOS Styrolution. Additionally, British American Tobacco has expressed interest in reducing its stake in ITC.

Conversely, the higher premium in Indian markets attracts global players to consider listing their subsidiaries in India. Reports suggest that South Korean automotive giant Hyundai is contemplating an Indian listing with a $3 billion initial public offering (IPO).

The Seoul-listed Hyundai Motor Company trades at a PE of 5.2x its forward earnings and a historic PE of 3.53x. This is a huge discount to the valuations at which Indian auto giants are trading.

Take the case of Maruti Suzuki, trading at a PE of 29.31 times while the parent company, Suzuki Motors, trades at 13.31 times.

Previously, Indian companies sought listings in foreign markets due to better valuations and easier access to funds. However, with the liquidity and premium offered by Indian markets to well-managed MNCs, the dynamics has shifted. Many MNCs are now leveraging the premium to either finance their international operations by selling a portion of their Indian holdings or capitalise on the bullish market sentiment.
India's financial market has captured the attention of foreign players, indicating potentially increased activity by MNCs in the days ahead.

Investing insights from our research team

Hindalco: Listing of Novelis in the offing

Juniper Hotels IPO: Should you subscribe to the luxury hospitality company?

eMudhra: Should you buy it after the recent run-up in the stock price?

SJS Enterprises: Premiumisation continues to be a key driver

In case you missed it

MC Pro Election 2024 Portfolio: You can bet on these 14 select stocks to play the election theme

What else are we reading?

MC Pro Inside Edge: Fastest-Finger-First strikes in Sula, Paytm punters’ long wait, rights issue capers, PSU bank convert

Why the Novelis IPO news did little to lift investor sentiment for Hindalco

Rate cuts unlikely until RBI sees inflation stable at 4 percent

The regulatory landscape for NBFCs is still a work-in-progress

The curious case of India’s core inflation fall

Chart of the day | Mid and Small Cap funds: A crowded market

Can the upcoming WTO ministerial bust the myth of 'unlucky 13'?

Marketing Musings: What is the secret sauce of international brands in F&B and hospitality businesses?

There is magic in the discovery of a new type of magnetism (republished from the FT)

Navalny Death: The poisoner’s recipe for making history

Meet the Delhi School of Economics alumna who's the only one making sense in BoE's MPC

Nickel and Copper: A tale of two metals will determine the future of energy

Are energy efficient appliances worth it?

Multi-Contributor Social Security: Time to reimagine social security contributions

Political Deepfakes will hijack your brain — if you let them

Personal Finance

Are you new to credit? Here are five essential tips for you

Technical Picks: Nifty, IndusInd Bank, PowerGrid, RVNL and Copper (These are published every trading day before markets open and can be read on the app).  
Shishir AsthanaMoneycontrol Pro