Shares of leading paint companies gained on Wednesday as crude oil prices continued hit a 5-week low overnight. Both Brent crude futures and West Texas Intermediate crude (WTI) closed at their lowest level since March 24 in the previous session.
Paint companies like Asian Paints, Berger Paints, Kansai Nerolac and Akzo Nobel India saw their stocks advance between 1-3 percent on Wednesday. In fact, Akzo Nobel shares hit a 52-week high in intraday trading on Wednesday.
On Tuesday, concerns over the US economic health sent WTI crude below $72 per barrel, down 5.3 percent from its previous close. This was the biggest daily percentage decline since January 4.
Brent crude tested $75 per barrel levels on expectations that the US Federal Reserve may announce a final interest-rate hike this week in its current tightening cycle.
Paint companies could benefit from falling crude oil prices as they use a significant amount of petroleum-based raw materials. The price of crude oil is directly proportional to the cost of paint manufacturing. Lower crude oil prices mean lower manufacturing costs for these companies which may translate into higher profit margins.
Last month, brokerage firm ICICI Securities had advised investors to stay ‘underweight’ on paint stocks as the industry is likely to witness single-digit revenue growth in the March quarter.
ICICI Securities had assigned a ‘reduce’ rating on most paint stocks such as Asian Paints, Berger Paints, Kansai Nerolac, and Indigo Paints, except for Akzo Nobel, which was assigned a ‘Buy’ rating.
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