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Family-run entities have outperformed their non-family-owned peers over the past decade (including the Asia-Pacific region), according to a Credit Suisse report released earlier this month.
However, a more granular data of BSE500 index firms suggests that listed subsidiaries of global multinationals — such as Hindustan Unilever, Maruti Suzuki, Nestlé, and Colgate Palmolive — have been favourites of equity investors in India after the Lehman crisis.
MNCs have outperformed their peers on the bourses since 2009, followed by family-owned companies. Government firms have been bottom of the pile.
The combined market capitalisation of 50 listed MNCs in the Business Standard sample is up more than 8x, or 715 per cent, since January 2009.
This is in comparison to a 706 per cent rise in the m-cap of family-owned firms and a 430 per cent rise in the combined m-cap of all 362 entities in the sample.
For companies without any distinct promoter and independent companies, m-cap was up 544 per cent. Some independent firms in the sample are L&T, ITC, Axis Bank, HDFC Ltd, HDFC Bank, and ICICI Bank.
Independent entities ranked first till January, but their share prices were hit severely by the pandemic. These firms are largely in retail lending, which faces large potential losses owing to the recession.
State-owned firms have been the biggest laggards, with their m-cap rising just 29 per cent cumulatively since January 2009. Consequently, the set of 49 state-owned firms is now the smallest constituent in the listed space, in terms of m-cap.
In contrast, PSUs were the second-largest constituents after family-owned firms at the beginning of 2009.
MNCs’ outperformance has been down to their superior financial performance over the past decade. The combined net profit of listed MNCs in the sample has more than doubled in since FY09, growing at an annualised rate of 7.6 per cent.
For family-owned firms, profits have halved. For government companies, combined earnings have risen close to 10 per cent during the period.
MNCs are also in a much better place to absorb macro-economic shocks, compared to home-grown peers. What also helps is that MNCs are far more conservative in big-ticket deals and focus more on brand building and outsourcing, unlike their Indian peers.
Independent or non-promoter firms, however, topped the profit charts in the post-Lehman period, thanks to rapid growth by retail lenders such as HDFC, HDFC Bank, ICICI Bank, and ITC.
The combined net profit of independent firms was up 3.5x between FY09 and FY20 — an annualised growth rate of 14.9 per cent.
The changes in m-cap, however, understate the relative outperformance of MNCs and overstate the market performance of family-owned and independent firms given the role of equity dilution.
MNCs fund their growth almost exclusively through internal accruals with no equity dilution, which means changes to their m-cap fully reflects in the share price. In contrast, there is frequent equity dilution by family-owned firms as they issue new shares to raise fresh capital.
Equity dilution is most common in capital-intensive industries like banking, NBFCs, metals, telecom, cement, and construction and infrastructure.
