Asian Paints shares up 8% in 1 week amid rising momentum, even as regulatory clouds loom

Shares of Asian Paints have gained 8.3% over the past week, rising as much as 1.8% on Thursday, as falling crude prices boosted investor optimism around improving margins for India’s largest paint manufacturer, even as it faces an antitrust probe by the country’s competition regulator.

The rally comes amid a drop in global oil benchmarks, which are closely watched by paint manufacturers due to their heavy reliance on crude-linked raw materials. Brent crude futures were down 0.35% at $68.87 per barrel and US West Texas Intermediate crude slipped 0.36% to $67.21 per barrel in early trade Thursday, reversing gains from the prior session.

Lower crude prices typically result in reduced input costs, potentially boosting gross margins and profitability, and positively affecting stock prices of paint companies.

Technical momentum builds

From a technical perspective, Asian Paints shares are currently trading above seven of their eight key simple moving averages, including the 5-day through 150-day SMAs, but remain below the 200-day SMA. The Moving Average Convergence Divergence (MACD) stands at 19.2 and remains above both the center and signal lines, reinforcing the ongoing bullish trend.

However, the Relative Strength Index (RSI) is at 70.5, a level considered overbought. This implies that stock may show pullback.

The stock, which has declined 16% over the past year, has shown signs of recovery, gaining nearly 5% in the past six months and 6.4% over the last three months.

CCI orders probe

The gains come even as Asian Paints faces scrutiny from the Competition Commission of India (CCI), which on Tuesday, July 1, ordered a probe into allegations that the company abused its dominant market position in response to a complaint filed by Birla Opus, the paints venture of Kumar Mangalam Birla’s Grasim Industries.

The CCI’s preliminary findings stated that Asian Paints had breached competition laws, with evidence showing the company has been "imposing unfair conditions upon them (dealers), which is found to be in the nature of exploitative conduct."

According to Birla's complaint, Asian Paints offered dealers discounts and incentives such as foreign travel in exchange for exclusivity, raised sales targets for dealers who stocked Birla products, and "coerced" landlords and transporters to avoid doing business with Birla’s firm.

The commission added that Asian Paints seems to be prima facie "creating barriers to new entrants in the market as well as partially foreclosing competition."

In a filing to the exchanges, Asian Paints said it is reviewing the order and will take "appropriate legal recourse." It also added, "The company remains committed to fully cooperating with the CCI during the course of the investigation."

Despite regulatory headwinds, the improving crude oil backdrop and strong technical signals appear to have lifted investor sentiment in the near term.

Also read | Asian Paints shares slide 2% after CCI orders probe over alleged abuse of dominant position

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