Asian Paints shares are down 10% in the past month; Should you buy the dip from this paint manufacturer?

With a substantial correction in the overall market, several blue chips have captured the interest of investors and one of them is Asian Paints.

Year-to-date (YTD), the stock has fallen more than 14%. In the last month alone, the stock is down about 10%. This is in comparison to the benchmark Nifty50 which has fallen around 4% over the past month and year to date.

“The dominant theme in the market as a whole is ‘buy the dip’ and I think Asian Paints should be the first among the large caps to be bought into this dip,” said Awanish Chandra, Head – Institutional Equities, SMIFS .

The ongoing war, soaring crude and general inflationary pressure caused a rare correction in the company’s stock price. But the paint maker’s strong fundamentals and solid management of the company have given investors confidence, according to Chandra.

Shirish Pardeshi, fast-moving consumer goods analyst at Centrum Broking, says he is “buying” Asian Paints shares at these levels for several reasons. He pointed out that the company has proven its market leadership in the paint industry and has consistently gained market share while significantly improving its execution capability over the past few years.

Additionally, Asian Paints has repeatedly withstood crude oil shocks since its inception and has been able to manage its margins smartly. This makes Pardeshi believe that this time would be no different and that the company would be able to weather the surge in oil prices without taking a hit to its performance due to very strong underlying demand on oil prices. markets, particularly in Tier II, III and IV markets.

Crude oil prices surged when US President Joe Biden announced a US ban on imports of oil and other Russian energy, fueling supply concerns. The UK followed the US in banning Russian oil and petroleum products.

Russia is the world’s second largest crude exporter behind Saudi Arabia, shipping around 3 million barrels of crude a day to European OECD countries, according to reports.

Additionally, Shell PLC said it was pulling out of Russian oil and natural gas trading, saying it would immediately end all spot purchases of crude from the country and phase out its other trading and commercial.

The price of crude fell and this had a contagion effect on other commodities. It extended the decline from its 14-year high. This very week, the price fell from $136 per barrel to $109 per barrel. This is after Russia pledged to fulfill its contractual obligations.

On Monday, Brent crude had hit $139.13 a barrel and US West Texas Intermediate hit $130.50, with both benchmarks hitting their highest since July 2008 before paring gains.

As of 10:09 a.m., the May Brent crude oil futures contract was flat at $109.37 a barrel.

“It is absolutely clear that a rejection of Russian oil would lead to catastrophic consequences for the world market,” Russian Deputy Prime Minister Alexander Novak said Monday in an address on state television.

“The price spike would be unpredictable. It would be $300 a barrel if not more,” he said.

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Novak added that it would be “impossible” to quickly replace Russian oil on the European market. It would take more than a year for Europe to replace the volume of oil it receives from Russia.

The Street feared that a spike in crude oil prices could deal a major blow to Asian Paints’ profitability. Indeed, the Mumbai-based company uses derivatives of crude oil to manufacture paint and the higher cost of raw materials could lead to a decrease in the company’s margin.

Asian Paints management had said raw material prices had increased since the start of 2021, which impacted its interunit margins in the second quarter of FY22 and business gross margins in third quarter of fiscal year 22.

Even though soaring oil prices have hurt the company’s operating performance in previous quarters, market maven Saurabh Mukherjea of ​​Marcellus Investment Managers has been bullish on Asian Paints for some time now.

Mukherjea said Asian Paints had been “a lot of strategic aggressiveness” over the past three quarters. It is “to gladden our hearts, causing us to buy even more shares”. Except for Berger Paints, the competition may not be able to keep up with Asian Paints, Mukherjea said in October last year.

“Technically, the stock looks weak on the charts. But interestingly, historically when the stock was technically weak, investors gobbled up Asian Paints stock,” said research analyst Arpan Shah. Principal at Monarch Networth Capital.

Shah said any further drop in stock should definitely be used to build up the paint company’s stock.


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