Paint stocks rise up to 5% as crude oil prices slump to four-month low

Shares of Indigo Paints, Asian Paints, Berger Paints, Akzo Nobel, and Kansai Nerolac rallied up to 5% in Friday's trade after oil prices dropped around 5% on Thursday to their lowest in four months, as investors worried about global oil demand following weak data from the US and Asia.

Asian Paints surged 3% to emerge as the top gainer in the Nifty 50 index. At 11 am, the scrip was trading 2.62% higher at ₹3,212.40 apiece on the NSE. The stock has gained nearly 6% since the beginning of this year.

The average target price of Asian Paints is ₹3,204.50, which shows a downside of 0.20% from the current market prices, according to data from Trendlyne.

Indigo Paints rallied 5% to hit a day's high of ₹1,550. At 11:10 am, the scrip was trading 3.86% higher at ₹1,531.35. The stock has climbed 17% so far this year.

While Berger Paints was trading 1.62% higher at ₹587.60. Berger Paints also surged over 22% on a year-to-date basis. The average target price for Berger Paints is ₹609, which shows an upside of 3.63% from the current market prices, as per Trendlyne data.

"A huge proportion of the raw material cost, 30-40% is attributed to crude oil. As crude prices fall, the margins are expected to improve, which is contributing to the rally. Secondly, festive demand which usually falls in Q2 has been pushed towards Q3, moreover, markets are now expecting rural demand to pick up," said Sreeram Ramdas, Vice President at Green Portfolio, PMS.

According to Sonam Srivastava, Founder and Fund Manager at Wright Research, PMS, the Indian paint industry is experiencing a significant surge in demand due to a notable recovery in the real estate sector, a major consumer of paints. Next, the government's substantial investment in infrastructure development, including roads, highways, and bridges, has escalated the need for construction materials, paints included, the analyst said.

"Supportive government policies like the Goods and Services Tax (GST) and the Pradhan Mantri Awas Yojana (PMAY) have also positively impacted the sector," Srivastava added.

According to an ICRA report, the Indian paint industry is expected to grow at a CAGR of 10-12% over the next five years. "This robust growth outlook makes paint stocks an attractive option for investors bullish on the Indian economy," Srivastava noted.

Brent futures settled down $3.76, or 4.6%, to $77.42 a barrel. US West Texas Intermediate crude (WTI) shed $3.76, or 4.9%, to $72.90. Both Brent and WTI earlier traded at their lowest since July 7, at $76.60 and $72.16, respectively.

Both WTI and Brent's front-month contracts also traded below later-dated contracts, a structure known as contango.

"The mood is negative, the charts are negative," Phil Flynn, an analyst at Price Futures Group, told Reuters. "It's going to take something to change that mood, and until then people will ride it down until they realise it's overdone."

The count of Americans initiating new claims for unemployment benefits rose to its highest point in three months last week, indicating a sustained easing of labour market conditions.

The report followed additional data indicating a decline in US retail sales for the first time in seven months during October, with decreases observed in motor vehicle purchases and spending on hobbies. This trend signals a slowdown in demand at the beginning of the fourth quarter, reinforcing the belief that the US Federal Reserve has concluded its interest rate hikes.

Meanwhile, an expected slowdown in Chinese oil refineries throughout also gave investors pause. Runs eased in October from the previous month's highs as industrial fuel demand weakened and refining margins narrowed.

Still, Chinese economic activity rallied last month as industrial output increased at a faster pace and retail sales growth beat expectations.

Amid the escalating Israel-Hamas conflict in Gaza, US officials declared on Wednesday their intent to enforce oil sanctions against Iran, a longstanding supporter of Hamas.