Indian subsidiaries of multinational corporations (MNCs) are increasingly commanding higher valuations than their parent companies, reflecting investor confidence in India's economic growth and future prospects. This trend is evident across various sectors, with the IPO valuation of LG Electronics India serving as a prime example.

Factors Driving Richer Valuations

• Rapid Economic Growth: India's economy has demonstrated strong growth, with a GDP surge of 8.2% in FY24, surpassing earlier estimates. This robust economic performance fuels investor optimism regarding the potential for higher returns and market expansion in the Indian market.
• Government Initiatives: Government initiatives such as "Make in India" and Production Linked Incentive (PLI) schemes are boosting manufacturing output and attracting foreign investment. These policies aim to transform India into a global manufacturing hub by encouraging both domestic and international companies to produce goods in India.
• Increased Defense Spending: The Indian government is increasing its focus on upgrading its defense capabilities to become self-sufficient and modern. The Union Budget 2025-26 allocates ₹6.81 lakh crore to defense, a 9.53% increase, accounting for 13.45% of the total budget.
• Strong Domestic Demand: An expanding domestic consumption base reinforces India's status as a dependable node in global production networks.
• Focus on Indigenization: The "Atmanirbhar Bharat" initiative encourages domestic manufacturing, innovation, and research to reduce import reliance across key technologies in the defense sector.
• Emerging Technologies: Goldman Sachs favors private sector companies over state-run ones, citing stronger exposure to emerging technologies highlighted in the Technology Perspective and Capability Roadmap (TPCR) 2025.

Examples of Higher Valuations

• LG Electronics India: The IPO valuation of LG Electronics India far exceeds that of its Korean parent, despite the Indian business being much smaller. This reflects investors' conviction about better prospects in India.
• ABB India and Cummins India: Capital goods companies like ABB India and Cummins India also enjoy higher P/E multiples than their parents.

Impact on the Manufacturing Sector

The manufacturing sector plays a significant role in the Indian economy, contributing 17% to the nation's GDP and employing over 27.3 million workers. The Indian government hopes to increase manufacturing's contribution to 25% of the economy by 2025. The India Manufacturing Market is currently valued at USD 1.62 trillion in 2025 and is forecast to reach USD 2.30 trillion by 2030.

Defense Sector Growth

India's defense sector is expanding, driven by increased government spending and a focus on indigenization. The domestic defense market is expected to surge sixfold over 20 years, exceeding Rs 10 lakh crore. Three Indian firms, Hindustan Aeronautics, Bharat Electronics, and Bharat Dynamics, are among the top 25 most valuable defense companies in the world.

Challenges and Considerations

• Input Costs and Tariffs: India's manufacturing growth slowed in September due to soaring input costs and US tariffs.
• Global Economic Headwinds: The global economic situation and geopolitical tensions could impact the growth and valuations of Indian companies.

Conclusion

Indian arms are indeed striking richer valuations than their global parents, driven by a combination of factors including strong economic growth, government initiatives, and increasing defense spending. While challenges remain, the overall outlook for Indian manufacturing and defense sectors is positive, with potential for further growth and value creation.