Paint stocks ride on infrastructure boom

Mumbai, August 1 | Updated: Aug 2 2005, 05:30am hrs
The ripples of infrastructure boom has reached the allied sectoral stocks too. The stocks belonging to paint industry were on the rise on The Stock Exchange, Mumbai (BSE) during the month. Low interest rates and good monsoons were the obvious reasons for such a surge. With the arrival of monsoons and its satisfactory progress, the income level of agri-dependent rural India is expected to jump and a pick up in the home building activity is foreseen.

But market experts say that it is not all about rates and monsoons, but a lot more, to take the rally in paints stocks further on. Though seemingly a bit too much into the future, the reasoning goes so; infrastructural haste and better connectivity will for sure scatter the population shooting up house building activity and hence, the demand for a whole array of products right from steel, cement and paints to high-end consumer durables is certain to go up.

Jenson and Nicholson (India) Ltd, galloped 64.03% over the month as the stock price rose from Rs 6.95 as on July 1 to close at Rs 11.40 on July 29. Goodlass Nerolac (up 1.07% at Rs 586.20), ICI India (up 18% at Rs 310.05), Snowcem India Ltd (up 24.67% at Rs 18.95), Shalimar Paints (up 11.41% at Rs 87.90 and Asian Paints (up 11.43% at Rs 458.60), all gave smart returns to investors.

Pradeep Chokhani, head of equities, Dolat Capital said, The earnings growth for paint companies is expected at 15%. The planned expenditure has gone up by 18.33% and the golden quadrilateral project is still in its early stages. Hence, there is a lot of upward potential for companies in infrastructure and allied sectors.

An analyst with a domestic brokerage said, The stock price surge could be attributed to the healthy topline growth of companies during quarter ended June 30, 2005. Good volumes and higher profitability were the key drivers of stock prices.

Mr Chokhani said, Nearly 30% of the bank loans are home loans. People have either built new homes or bettered the existing ones. And this explains the volume growth of paint companies.

A large portion of the demand for paints comes from the consumer front followed by the industrial demand including the automobile sector.

Also, leading paint manufacturers of the country have found potential markets abroad and are expanding their operations.

The confluence of all these factors is what you see at the bourses, said an analyst with a prominent broking firm.