Value buying or FOMO? Investors flock to buy shares sold by MNC parents in Indian arm 

Over the past year, stock prices have soared, leaving few bargains for investors. That is causing investors to bank on pedigree while having to buy expensive stocks. This could explain why shares sold by foreign multinationals in their Indian arms are being snapped up even if growth prospects do not look compelling.

Take consumer durables company Whirlpool India. Parent Whirlpool Corporation sold its 24 percent stake in the company on February 20. Indian investors like SBI Mutual Fund, Nippon India Mutual Fund and Aditya Birla Sun Life Mutual Fund were among those scrambling to buy the stock.

Also read: Will MFs hiking stake in Whirlpool drive a rerating of the stock?

Sunil Singhania, founder of Abakkus Asset Managers, succinctly argued the case. In a post on microblogging site X, he said, “Foreign parents find Indian multinational subsidiaries valuations so expensive that they are selling their strategic stakes. And Indian investors in the fear of missing out are buying low growth companies at crazy multiples.”

Whirlpool India is trading at 66.23 times its forward 12-month earnings with no visible recovery in growth.

“The street is optimistic about Whirlpool despite the business showing no signs or green shoots of recovery even after three years of muted performance,” said Alok Deshpande, executive director at Nuvama Institutional Equities. Consumer discretionary demand has been weak for a long time now, affecting low-cost consumer durables companies.

Also, heightened competition is expected to keep Whirlpool’s growth under check in the near term, primarily from newer players such as Volt Beko and Lloyd, said Natasha Jain of Nirmal Bang.

Even Whirlpool’s management in its conference call to discuss the third-quarter results guided a high single-digit revenue growth over the medium to long term with market share gains. It also said that days of double-digit margins are over for now due to heightened competition.

Another example is Lunolux Limited, the promoter of Eureka Forbes, which sold more than a 10 percent stake in the Indian company. Edelweiss Dynamic Growth Equity Fund, Bandhan Mutual Fund and others rushed to buy the stock. Eureka Forbes has a price-earnings multiple of 103x, expensive compared to its peers.

In the last year, foreign parent promoters have sold their stakes in GMM Pfaudler and Timken also. GMM Pfaudler India and Timken in India, as the domestic company is called, are trading at rich valuations of 27.2x and 54.05x their forward 12-month earnings, respectively.

Parent valuations cheaper

Foreign promoters are selling their stakes in Indian subsidiaries at hefty premiums. In the case of Whirlpool India, for instance, the parent is trading at a 12-month forward PE of 8.2x. For Whirlpool India, it is 66.33x.

“Parent companies selling their stakes in Indian subsidiaries at a premium is normal. Companies often seek to divest interests in subsidiaries to align better with strategic objectives. Current optimism and buoyancy in the broader markets offer a conducive environment to execute such a plan,” said Nirav Karkera, head of research at fintech firm Fisdom.

According to an expert who asked not to be identified, Indian companies may derive expensive valuations because they can be market leaders in the country. However, this person pointed out, that the parent company may not get the same valuation given they may not enjoy the same advantage elsewhere.

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