MNCs optimistic on Indian consumer market

Rohit Joshi and Siddharth Tak/ ZRG

India story has just acquired a new found bounce thanks to spate of announcements by multinational corporations to up their interest in the country. The level of heightened interest manifests itself in many forms ranging from increasing equity stake in their Indian arms to acquire stakes in companies in India.

The diversity of investments shows that MNCs are bullish on India across consumption driven sectors. Earlier during the first quarter of the calendar, Foreign Institutional Investors (FIIs) too turned net investors in India. However, during April, there was observed a fall in the interest level. Considering the monthly average FII flows of about Rs 18,500 crore in the first quarter of the calendar, the figure has fallen drastically to around Rs 4,000 crore in April.

Companies like Panasonic (Japan), LG Electronics (South Korea), GlaxoSmithKline Consumer Healthcare (UK), Unilever PLC (UK), Honda Motor (Japan), Air Asia (Malaysia), Etihad Airways (UAE) have announced plans in the recent past to mark their optimisim at a time when the overall growth indicators in the country are headed south.

Companies related to consumer durables segment like Panasonic and LG are betting high on Indian markets. While Japan’s Panasonic Corp plans to invest around Rs 1500 crore over the next three years for expansion, Korea’s LG Electronics expects that India will be amongst its top three markets within three years. India is currently its fifth biggest market globally after US, South Korea, Brazil and Russia.

Consumer goods companies also foresee tremendous growth opportunities in India. Anglo-Dutch company, Unilever has announced to raise its stake in Indian subsidiary, Hindustan Unilever (HUL) to 75 per cent. Unilever plans to acquire up to 48.7 crore shares through open offer at Rs 600 per share. This suggests that Unilever would be spending around Rs 29,200 crore in the open offer to increase its stake in HUL. Similarly, in 2012 India has now emerged as the largest contributor to the global revenues of London based, GlaxoSmithKline Consumer Healthcare (GSKCH). In February 2013, parent GlaxoSmithKline nearly spent Rs 5,222 crore to increase its stake in the Indian unit to 72.46 per cent.

Confirming the trend, Sudip Bandopadhyay, President at Destimoney Securities, said, “Although we have slowed down a bit yet Indian consumption story is still much more robust when compared to nations like US and Europe. The global giants who operate across the world find Indian markets still very attractive owing to the huge population and consumption story.”

In sync with Bandopadhyay, V Srinivasan, Research Analyst at Angel Broking, who tracks FMCG sector closely said, “Barring a short-term blip, the long term Indian consumption story is always intact. Furthermore, consumer industry is a recession proof one and the consumption would certainly get a boost as overall economic growth improves along with normal monsoon. The promoters’ money is not hot money as they invest with a long term perspective.”

The trend can also be witnessed in the consumer discretionary segment like cars. Although car sales in India have plunged by about 7 per cent in last fiscal (first decline in a decade), yet global automakers like Honda recently announced an investment of Rs 2,500 crore to double its capacity in India.

In aviation sector too, long term investors have started to show interest in India’s story after government allowed foreign airlines to acquire stake in Indian carriers. UAE based Etihad Airways has acquired 24 per cent stake in Jet Airways. This strategic investment has given Etihad an opportunity to access the growing Indian travel market. Knowing the potential of the sector, even AirAsia-Tata Sons joint venture is all set to start operations within India.