Last week’s initial public offering (IPO) by Hyundai Motor India Ltd. was a landmark event, marking the largest IPO in the country's history. However, its true significance lies beyond its sheer size. This $3.3 billion IPO could potentially set a trend for other multinational companies, reminiscent of Colgate-Palmolive Co.’s local listing nearly 50 years ago.
Historical Context and Present Significance
A comparison with past multinational listings in India highlights how far the country has come. In the 1970s, companies like Colgate faced pressure due to India's tight foreign-exchange situation post the 1973 global oil shock. Laws were enacted to limit multinational holdings to 40%, compelling firms like IBM and Coca-Cola to exit. Others, like Colgate and Unilever, chose to stay, offering shares at controlled prices to a nascent middle-class investor base.
Today, the scenario is vastly different. India’s foreign-exchange reserves are robust, with nearly $700 billion in assets. Hyundai's parent company sold 17.5% of its local unit without coercion, capitalizing on India's high market valuations. For example, Suzuki Motor Corp.’s Indian unit boasts a market capitalization of $45 billion, more than double that of its parent company in Tokyo.
Multinational Interest in Indian Markets
Hyundai’s IPO may signal a wave of similar actions from other multinational corporations. LG Electronics Inc. is reportedly preparing for an IPO of its Indian unit. Whirlpool Corp. has already sold 24% of its Indian operations. These moves reflect a strategic decision to leverage the high valuations in India, despite potential challenges.
Even Coca-Cola, which re-entered India in the 1990s, may be considering listing its local bottling plant. Walmart Inc. is also contemplating the local sale of shares in its Indian e-commerce platform and digital payments firm. These potential listings could help these companies align more closely with Indian regulatory expectations and market conditions.
The Evolution of India's Equity Market
India's stock market has evolved significantly since the forced listings of the 1970s. There are now over 170 million accounts for holding electronic securities, a testament to the broadening investor base. The rise of India's equity culture is often attributed to the 1977 IPO of Reliance Textile Industries. However, early share sales by Colgate, Unilever, and Cadbury played a crucial role in expanding the capital market’s reach.
Implications for Investors and the Market
The entry of high-quality multinational stocks is crucial at a time when the market is attracting weaker issuers and facing high valuations amid weakening earnings growth. Multinationals, generally conservative with investments, provide a stable investment option. Companies like Hindustan Unilever Ltd. and ITC Ltd. have consistently rewarded investors with high dividend payouts.
Hyundai’s IPO represents more than just a significant financial event; it signifies a potential shift towards a more diversified and stable Indian stock market. This move could encourage more multinational firms to consider listing in India, providing a much-needed cushion of quality stocks.
Conclusion
Hyundai's IPO is not just a financial milestone but a potential harbinger of future trends in multinational listings in India. As the market continues to evolve, the presence of high-quality multinational stocks could play a pivotal role in stabilizing and enriching India’s financial landscape.