Can Asian Paints stock sustain the momentum?


After Asian Paints stock jumped 8.5 per cent following the release of its quarterly report card, Mahantesh Sabarad, Head, Retail Research, SBICAP Securities, says he is surprised on the stock price movement and would be a little cautious in the near-term. Edited excerpts from his interview with ET Now:

What is your reading of Dr Reddy’s numbers?
Apart from the results, one should look at two things. The biggest statement that came from the company was about the rollout of the Sputnik V vaccine. This gives confidence about the future outlook of the company.

Secondly, you have to look at Dr Reddy’s performance in the US market. Besides pricing pressure in the US, there has been a lot of pressure from FDA in the past. Going forward, the post-Covid growth in the US market is likely to be very strong and that augurs well for most pharma companies in our country. To some extent, Dr Reddy’s as well. So these two things are going to help Dr Reddy’s performance going forward. I will not look at the result of Q4 to forecast the future.

Do you expect further correction in metal stocks?

Yes, there is bound to be a correction because the commodity rally has been relentless for the past few months. So there will be profit taking bouts but the rally will continue. If you are into trading, you can use this opportunity. We see this rally continuing for a few more months because of the underlying fundamental reasons. The strong growth in developed countries and China augurs well for many Indian companies.

What is your outlook on the entire consumption space – HUL, Britannia, Asian Paints, etc?
The growth for most of the FMCG companies in the quarter has been good. We had the fear of the commodity rally pushing their margins into a lower trajectory, but that does not seem to have happened. They seem to have retained their pricing power even when the commodity cost push was there. Having said that, the outlook for the quarter seems bleak because we are going into stricter lockdowns.

Most of the FMCG companies have this problem of global commodity prices pushing their costs up, whereas the local demand factors remain quite subdued. This phenomenon is going to continue further. In Q1 of the new fiscal year, I believe most of these FMCG stocks will moderate. The only good thing about them is that from an investor’s point of view, they become good dividend plays. So the long-term outlook remains strong and robust but the outlook remains doubtful in the near term.

What are your takeaways from earnings?
Frankly, I am quite surprised by the movement in the stock price. The results were on expected lines. The only good news is that their underlying volume growth was quite robust. Q1 of this year is going to be tough for most of the FMCG companies, including Asian Paints. We will not see a similar kind of volume growth trajectory going forward and the cost push will also be coming in. Sequentially, the margins have not moved quite sharply for the company. We expect a correction in the subsequent quarter. So we would be a little cautious about Asian Paints in the near-term, but the long-term story remains intact. Until the next round of growth comes after the monsoons in Oct-Dec, the stock will probably remain flattish to a little down. Having said that, post October we should be looking at stronger growth from Asian Paints once again.


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