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Multinational companies (MNCs)- A lucrative future?

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Multinational corporations, commonly known as MNCs, have existed for quite a while now. But can you guess which is the world’s first multinational company? Read on to find out.

History

The motivations of MNCs starting in the 17th century lay in colonization for territory, oil, manufacturing, mining, and/or trade. Modern MNCs started appearing post the industrial revolution. However, the trend of companies going global saw a boom after World War II when trade and investments were being liberalised worldwide to stabilize economies, and information and communication technology was becoming more sophisticated by the day. 

What are Multinational Companies?

Today, a multinational corporation or enterprise is defined as an international corporation whose business activities are spread among at least two countries, i.e., it has facilities and other assets in at least one country other than its home country. They provide product and service offerings indispensable and essential to our daily lives.

How do MNCs contribute to the overall economy?

MNCs play a pivotal role in the economic growth and development of the country. They come with truckloads of money – in fact, some of these companies, also known as international, stateless, or transnational corporate organizations, may have more extensive budgets than some smaller countries. 

These companies are believed to be especially beneficial for developing countries because they bring in employment opportunities and new technologies that domestic firms can then use. Furthermore, MNCs make profits due to government subsidies that are in turn linked to investment in local firms and the development of the local community through employment opportunities and CSR activities.

According to studies, there’s a clear correlation between FDI from MNCs economic variables such as GDP, GNP, Foreign Trade and Foreign Reserves. An increase in FDI from MNCs have a significant impact on these variables. For example, take a look at the data from 2000 till 2014 for the correlated numbers. Look how all other parameters increase when there’s a spike in FDI.

Year FDI GDP GNP Trade Reserves
2000-011.07 2.34 2.32 2.03 1.97
2001-021.86 2.472.45 2.092.64
2002-031.282.572.55 2.55 3.61
2003-041.00 2.782.762.934.90
2004-051.462.972.94 3.756.19
2005-062.453.253.234.566.76
2006-075.633.56 3.53 5.718.68
2007-089.863.90 3.88 6.55 12.37
2008-0914.28 4.16 4.13 8.40 12.83
2009-1012.31 4.514.48 8.45 12.59
2010-119.734.914.86 11.4213.61
2011-1216.51 5.24 5.20 14.65 15.06
2012-1312.19 5.48 5.45 16.34 15.88
2013-1414.75 5.745.67 19.05 18.28

Kya haal hai market ka?

A Bain analysis reveals two salient facts: Between 1991 and 2012, the number of MNCs in India more than quadrupled. And over 20 years, total MNC revenue grew at a compound annual rate of 18%—faster than the overall economy. The Nifty MNC index gave returns of 38.05% in the past year. 

Our Government has constantly tried to leverage the ease of doing business and liberalised regulatory environment as incentives for global companies to come in. Among various initiatives, the Government has slashed the corporate tax rates, liberalized Foreign Direct Investment (FDI) policies and norms in several sectors, and vehemently rationalized regulatory compliances burden for them. You can read more here.

In most sectors, FDI is now under the automatic route, except for a small negative list. That makes India one of the most open large economies in the world. According to UNCTAD’s World Investment Report 2020, India was the 9th largest recipient of FDI in 2019, with 51 billion dollars of inflows during the year.

Why invest in multinational companies?

Remember we asked you to guess which could be the world’s first MNC? Fun fact, the world’s first MNC is none other than the British East India Company!

The world’s first multinational corporation, the British East India Company, was established in 1601. After them came the Dutch East India Company in 1603. who went on to become the largest company in the world for the next 200 years. Click To Tweet

The British East India Company flourished because they were reliable, honoured commitments, and paid debt on time. In 1780, they introduced 5-year bonds, which provided good returns, so even the Indian private bankers preferred the British East India Company over the Mughals, Marathas, and Nawabs. Investments with these latter were always at a risk of complete or partial loss. 

Innovation. Quality. Trust.

Multinational companies are fundamentally robust and can withstand all market conditions. These companies have a strong global brand, excellent balance sheets, access to the latest technology, and strong management. Their presence in multiple locations ensures operations don’t stop even if there’s a crisis at one of the sites. Companies like Apple, Tata Motors, Nike, and more can be cited as good examples of successful MNCs, as described above.

Investing in MNCs helps ensure the geo-diversification of the portfolio. 

Multi National Companies (MNC) Advantage smallcase by Green Portfolio

Get a 20% discount on all Green Portfolio subscriptions! Use the code – GP20 

What’s the idea?

The Multi National Companies Advantage smallcase by Green Portfolio is a carefully curated portfolio through which you can invest in MNCs. The strategy of this smallcase is to focus on identifying outstanding stocks of the thousands of MNCs in India. The Green Portfolio team identifies the ones with an excellent corporate governance structure, easy access to capital, competitive offerings, business moat, and access to patents and research of the parent company.

The average market cap of this smallcase is nearly ₹19,000 crores, and the NSE MNC Index is taken as the benchmark.

How does this smallcase help me?

Well, let’s just say Green Portfolio has saved us humungous amounts of time and effort by creating the Multi National Companies Advantage smallcase. For an investor looking to take exposure to MNCs, there are several stocks to consider. Multinational companies are spread across sectors like consumer, automobiles, metals, pharma, IT, engineering, etc. To research each industry and then companies within is a cumbersome task.

With the Multi National Companies Advantage smallcase, you can take exposure to MNC stocks in just a few clicks! 

Where does it fit in your portfolio?

If you are looking to enhance the risk-adjusted returns of your portfolio through the stability and the return generation potential of MNC stocks, this smallcase is worth considering.

Who has curated this smallcase?

The investments team at Green Portfolio are the ones to thank! 

The SEBI-registered portfolio management company was founded by Divam Sharma and Anuj Jain, who come with 17 years of market experience. The team’s collective passion for investing, commitment to innovate and provide customized investment solutions, and constantly evolving research standards set them a class apart. 

Their core value at Green Portfolio is to create long-term, sustainable investment management solutions through discipline, passion, innovation, integrity, customer focus, teamwork, and continuous improvements.

Growth at reasonable valuation is at the core of their research philosophy. Stocks under the Multi National Companies Advantage smallcase are picked using their vital investing philosophy of ‘High-Quality Right Price’.

Further details

To check out more such unique smallcases by Green Portfolio, visit https://www.smallcase.com/manager/greenportfolio 

Green Portfolio’s offerings come with a small subscription fee that you can check out on the above website.  The subscription includes access to Green Portfolio’s official Telegram channel; weekly newsletters covering various sectors, current affairs, macro setups, performance, factsheets, and the likes; latest updates through emails, and resources on how to subscribe, archive, rebalance, and more. 

Here’s an offer you can’t refuse – Get a 20% discount on all Green Portfolio subscriptions! Use the code – GP20 

Hurry, claim your offer before it runs out!

In conclusion, one can safely say that investing in MNCs is an excellent way of wealth creation. Veteran investors highly recommend it for the fundamentally robust nature of the companies. Multinational companies are not just a vital part of the economy; they are household names that are indispensable for a long time to come. Even during volatile times, MNC stocks have successfully managed to limit the downside.

That’s our take on it. So, what do you think makes a company truly global? 

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Deblina Chakraborty

Writing to make investing more accessible for the layman. Product Marketing Associate @ smallcaseHQ

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Deblina Chakraborty

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