Mumbai: India’s leading paint companies are under renewed scrutiny from global brokers after Morgan Stanley initiated a broad de-rating call on the sector, assigning underweight ratings to Asian Paints, Berger Paints and Kansai Nerolac, citing rising competitive intensity, growth volatility and high valuations that could constrain returns.
In its latest note, the brokerage set fresh target prices implying potential downside from current levels — ₹2,126 for Asian Paints (around 11% lower), ₹400 for Berger Paints (nearly 18% lower) and ₹1,919 for Kansai Nerolac (around 7–8% lower) — underscoring a cautious outlook on future earnings momentum.
The caution reflects a view that the sector’s historically predictable earnings profile has eroded amid slowing demand in key markets and heightened competition from emerging players, which could weaken pricing power and margins. Morgan Stanley also pointed to increasing growth volatility in recent quarters, suggesting investors should price in a lower valuation multiple for the space.
That bearish call contrasts with some operational nuances reported by companies in recent results. For instance, Asian Paints has continued to post decorative volume growth and positive forecasts for upcoming quarters, while Berger Paints achieved its best gross margins in over a year, supported by moderating input costs. Kansai Nerolac’s management has highlighted momentum in its automotive and performance coatings business, even as decorative segments remain under pressure.
Market participants have taken note of the divergence in views. While the Morgan Stanley stance underscores valuation and medium-term growth concerns, other analysts have highlighted potential demand recovery post monsoon and festive seasons, and the strategic importance of industrial and specialised coatings segments that could soften the downgrade impact.
Paint stocks have seen their valuations compress over the past year as raw material costs have normalised and competition intensifies, but investors remain wary of the profitability outlook and volume trajectory in a challenging demand environment.