Paint companies rise up to 4% as crude oil price slumps

Shares of paint stocks rallied over 4 per cent on BSE in the intra-day trade on the back of falling crude oil prices. Paint companies are expected to gain from decline in crude oil prices as it is one the key raw materials in paint manufacturing. 

The stocks of three paint companies — Asian Paints, Berger Paints and Kansai Nerolac (Nerolac) — surged 15-23 per cent over the last one-month against a 2.6 per cent rise in the S&P BSE Fast Moving Consumer Goods (FMCG) index. A fall in valuation after the recent correction in the FMCG space too supported the rally in the stocks.

Though crude oil prices (Indian basket) are higher on a year-on-year basis, about 18 per cent fall over the last month means that it is now unlikely to reach $90-100 per barrel anytime soon as some experts had projected. The rise in oil prices had earlier led to muted profitability outlook for paint companies and investors shying away from their stocks.

“With supply glut, including rising shale oil production in the US and ease of sanctions for importing oil from Iran, we expect Brent prices to remain around $65 per barrel in FY19 (down 13 per cent from FY19 year-to-date average),” says Madan Sabnavis, chief economist at CARE Ratings. Further, chances of a production cut in the meeting of the Organization of the Petroleum Exporting Countries in the December meeting is unlikely, he adds. Brent crude oil is one of the benchmarks.

Oil prices steadied on Monday after plunging nearly 8 per cent in the previous session, but were under pressure with Brent crude below $60 per barrel amid weak fundamentals and struggling financial markets. Front-month Brent crude oil futures are up 2.30 per cent at $60.15 per barrel. US West Texas Intermediate (WTI) crude futures are trading 1.37 per cent higher at $51.11 per barrel.

The stocks of three paint companies — Asian Paints, Berger Paints and Kansai Nerolac (Nerolac) — surged 11-21 per cent over the last one-month against 6.2 per cent rise in the S&P BSE Consumer Discretionary Goods & Services index. 

At 12:05 pm, Asian Paints was ruling 2.39 per cent higher at Rs 1,345, Kansai Nerolac traded 3.82 per cent higher at Rs 461. Berger Paints was trading at Rs 319, up  1.75 per cent while shares of Shalimar Paints were trading around one and half a per cent higher at Rs 77.80 on BSE. In comparison, the S&P BSE Sensex was trading flat at 34,984, up just 2.49 points.