Paint stocks: Gross shock! Paint stocks fall by up to 11%

New Delhi: Rising crude prices sent paint stocks down as much as 11% in Monday’s trading session, with Indigo Paints hitting a new 52-week low.

Oil prices soared more than 6% to their highest level since 2008 after the United States and its European allies consider an import ban on Russian oil, while delays in the potential return of Iranian crude in world markets fueled fears of tighter supply.

This has clouded the outlook for paint stocks as they use crude derivatives. Any increase in oil prices increases input costs, thereby decreasing the profitability and margins of paint companies. Growing competition and rich valuations have also added to the woes.

Recently, JK Cements announced its intention to enter the painting business. Prior to this, JSW Group also marked its entry into the arena, increasing the number of organized players.

Santosh Meena, Head of Research, Swastika Investmart said paint stocks are crashing as there is a double whammy situation for them where boiling crude oil prices are a key challenge as this will reduce the margin because crude is one of the main raw materials for paint companies.

“Rising competition is another headwind for paint companies as other companies like Grasim, JSW Steel, JK Cement and others are entering the paint business, however, the outlook for the industry is still promising despite short-term jitters,” he added.

Shares of Indigo Paints fell around 11% to Rs 1,497.65, its new 52-week low before rising to Rs 1,511.10 at 10:25 am. The certificate was established at Rs 1673.55.

Asian Paints and Kansai Nerolac Paints fell more than 5% each to Rs 2,601 and Rs 423.50, respectively. Beger Paints and Shalimar Paints also lost more than 4% each during the trading session. Akzo Nobel India fell 2%.

The BSE Sensex Barometer and Benchmark traded 1,744.65 points or 3.21% lower at 52,589.16 at the time of writing.

Likhita Chepa, Senior Research Analyst, CapitalVia Global Research, said: “Stocks were trading at a relatively higher valuation, and when commodity inflation rises, the erosion of pricing power impacts margins. . Higher crude oil increases input costs for paint companies, which use derived crude.”

According to Meena, Asian Paints and Berger could continue to outperform and the recent correction provides a favorable risk-reward opportunity for long-term investors.

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