Nowadays everyone is focusing on the concept of Electric Vehicle buying auto, battery stocks but we are here going to present you with a completely different view.
“Always remember big money is not made by doing what everyone else is doing, have the guts to separate from the crowd and think differently”.
In some years various countries will shift towards electric vehicles so, in the long run, the demand for petrol and diesel will be reduced as most automobiles will run on electricity. So, one of the raw materials required to make petrol, diesel is crude oil and thus prices of crude oil will be significantly reduced. Do you now connect who can be the major beneficiary of this? It will be the paints sector as they require lots of crude oil for manufacturing. So, if the cost of their raw material will be brought down globally then their profit margins will increase a lot.
Budget FY2022 is a high CAPEX budget and when the government makes high capital expenditure more and more people get employed. As people will get jobs, they will be spending more and more thus consumption will rise. So, looking forward to the time frame of 1 year or more consumption-based stocks can do well.
This is a chart of consumer spending over the year. After the budget of 2011 consumption saw a boom and then it kept on increasing, now this time after a good Capex budget the same story can repeat and we may see a boom in consumption-based stocks in the coming quarters and years.
The budget also focused on developing a lot of infrastructures. So, when infrastructure will be developed, they are obviously going to paint it.
According to past data, there has been a decline in the repainting cycle as earlier people use to repaint their houses in 10 years, then it reduced to 7 years and as we move forward with time it is going to reduce as people will have more income in their hands, they are going to spend more on these. Also, many people are doing work from home in current days they are more tend to have a focus over their house repairs and early repainting can be a beneficiary of this.
Due to lower interest rates, there has been a huge surge in demand for housing finance and as more and more homes will be constructed it is good for the paints sector as demand is going to increase as if we look at coming months also the interest rates won’t rise that much thus demand for a house can remain strong for longer duration and good for paints overall.
So looking at things we can say that there is earning visibility for paint stocks and due to rising crude prices we are getting paint stocks at a good discount, in the long run prices of crude will again go down as more supply of crude will hit the market soon and also due to global shift in EV demand will reduce with coming years in crude oil thus we may see a boom in the paint industry. Asian paints is the market leader in paints and currently, it is down nearly 18% from highs so it can be a good opportunity to accumulate leaders for the long term. Berger paints is also good but due to high valuations if the market falls then it can see more downside but that will be temporary. So, one can accumulate paints stocks and if more dip comes then adding them will be great for long-term investors.
Research By: Ritvik Goyal