On March 16, shares of Asian Paints and Berger Paints gained for a second straight session as the crude prices fell yesterday.
At 11 am, Berger Paints was quoting at Rs 597.65 whereas Asian Paints quoted at Rs 2,862.85 on the National Stock Exchange, both higher by 1.2% from the previous close.
On Wednesday, Oil prices plunged more than $5 per barrel to their lowest in more than a year as Credit Suisse’s unease surprised world markets and offset expectations of a Chinese oil demand retrieval.
In fact, for the first time since December 2021, Brent slumped below the $75 per barrel mark.
As per the calculations by analysts, nearly 40% to 45% of raw materials used by paint companies consist of crude oil derivatives. This covers 30% to 35% of the aggregate, raw material cost. Thus, decreasing crude prices will ease margin pressures for the firms.
“Presently, the paint stocks trade below their long-term valuation, which delivers a bargain chance to the investors as the story remains intact,” research analyst at Geojit Financial Services, Antu Thomas, said.
While Asian and Berger Paints shares are upbeat, Kansai Nerolac and Akzo Nobel trade lower. Paints companies’ margins and volumes have been under pressure over the earlier few quarters due to a continued monsoon and a decrease in demand amid inflationary concerns.
Thomas said rally sustenance in the paint stocks would depend on a prolonged demand retrieval in discretionary spending and an inflation drop.