Paints sector can outrun staples: YES Securities

The brokerage said the ongoing correction is an opportunity to buy heavyweight stocks of the sector at relatively better entry levels even though margins are likely to remain at risk in the near term. Asian Paints is the preferred pick of YES Securities in the paints space followed by Berger Paints but it advises avoiding Indigo Paints.

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The brokerage has a buy rating on Asian Paints with a target price of ₹3,715. It has initiated coverage on Berger Paints with a target price of ₹790.

The brokerage has a reduce rating on Indigo Paints with a target price of ₹1,790.

Having fallen over 12% in the last three months, shares of Asian Paints ended at ₹3,080.90, down 1.62% from the previous close. Berger Paints’ shares ended down flat at ₹724.25. The stock is down 8% in the last three months.

Companies such as Grasim and JSW have expansion plans in the paints sector but sector leaders are not likely to see a major disruption. Moreover, companies are looking at more opportunities to grow such as home services, adhesives and waterproofing. A case in point is Asian Paints which has entered the home decor space.

The current scenario is also that of several challenges for the sector including the worst-ever commodity inflation and rising competition from several new entrants. But YES Securities believes that these companies have a long runway for growth.