Saturday, February 9, 2013

MNCS IN INDIA: REGULATORY REQUIREMENT

A large number of MNCs might choose the delisting mode as they do not like to interfere their decision-making process. But there is myriad of scope and enough incentives lie ahead for MNCs in the country, says B&E

However, while discussing about the reasons for delisting, something that might just cross the minds of the honchos of these MNCs is that over the past decade or so, the Indian equities market has grabbed the attention of the whole world and with each passing day, global investors are gradually getting involved with the same. Furthermore, today when the global market economies are still struggling to recover, India again is eyeing for a growth rate of over 7%. And that has made global giants like Standard Chartered to look forward to the Indian market, to raise some more desired capital. In such a situation, this could be a golden opportunity for these MNCs to unlock their true value in the Indian market and utilise the same to reap some real benefit out of the fast growing Indian market.

Going by this logic, the MNCs would love to follow the path opted by few of their counterparts like Nestle and Colgate. During the ’70s, they listed themselves in the Indian capital market but today they are taking the benefits. On the other hand, several companies like IBM and Coca-Cola, which once walked out so boastfully, are again back in the country after understanding how critical India could be for them.

The new norm has certainly allowed the government to clear its ground for disinvestment in public sector units as they are the biggest league of companies on Indian bourses where promoters’ holding (government’s) is higher than 75%. Government also hopes to raise as much as Rs.400 billion ($8.5 billion) from the stake that it would need to dilute in the PSUs and reduce the country’s fiscal debt to 5.5% of GDP from 6.6% at the end of the last fiscal. In the process, the decision has brought in the dillemma of delist or dilute for the MNCs operating in India. But while the companies are busy in finding out what should they do, the government must understand the fact that these companies, even if constitute a smaller portion of the total market capitalisation of Indian bourses, have a huge potential for the overall growth of the market. So, while it necessarily make the MNCs dilute promoters’ stake, it must also take care of the fact that there should be enough incentives for them to go for it rather than just delisting themselves.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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