Paint and Tyre Stocks Rise 3% as Crude Prices Fall; Auto Sector Cautious

The shares of paint and tire makers surged in the market on Monday as crude oil prices fell over 3% after OPEC lowers demand forecasts.

Fluctuations in the price of crude oil have a salient impact on the decorative paint industry because the raw material used in this industry is mostly crude products, over 300 items. Raw material inputs account for about 55-60% of paint input costs. Gross margins in this industry depend to a high degree on raw materials.

Further, Brent crude is also a critical feedstock to many other petrochemical products that are used in the synthetic rubber which is required in the making of tires. Thus, as crude prices decline, the cost of such raw materials also falls, and it thus reduces production costs for tyre firms thus brightening the margins on profits.

Asian Paints shares were up 1.5% to ₹3,085 on the NSE till 11:40 am IST; Berger Paints and Shalimar Paints had risen 2.7% and 1.3% respectively. Tire stocks were no exception either and saw CEAT, Apollo Tyres, and Balkrishna Industries rise 1.5% on average.

Lower crude oil prices also lower the cost of producing items such as titanium dioxide, a major input for white paint, thereby benefiting paint manufacturers with lower input costs and higher margins.

This subsequently hurts the oil drilling companies such as ONGC and Oil India where falling crude prices reduce the profit margins. This is because the proportionate declines in prices of the refined products may not be as prompt, and the refineries holding stocks purchased at high prices are likely to incur losses on inventory.

Asian Paints has been pretty flat over the last year, declining by around 0.5%. Berger Paints have risen by 3% and Shalimar Paints fell to the ground with a 30% drop. On the other hand, the Nifty 50 index gained by 27% in the same time.

The auto industry also seems to have swerved to the edge with the simmering conflict in the Middle East causing deep uncertainty over the prices of crude oil.

“We have to cautiously watch the trend. There is always a bit of resilience if the fuel prices go slightly up and down. But if it fluctuates a lot and go beyond a certain threshold, then it will definitely impact the auto industry,” noted Shailesh Chandra, who was recently elected as the president of the Society of Indian Automobile Manufacturers (SIAM).

Now it is an uncertain period for the car market because of fighting within the Middle East, where people are not sure about how crude oil prices will fluctuate. Shailesh Chandra said fluctuations in fuel prices, small though they may be, would not have any immediate impact, but a sharp change would start reflecting on the auto sector, more so on the commercial vehicle segment. However, he felt that the festive season would cushion the industry in the near term.

A recent surge in crude prices triggered by Iran's missile attacks on Israel had left India Inc concerned over further snag in supplies, and disruption in freight costs, and shipping routes.

Commercial vehicles, according to Chandra, are more vulnerable to a rise in fuel prices, compared other segments such as cars, scooters and motorcycles. He clarified that in the immediate term, the industry doesn’t see any major impact because of the onset of the festive season.

“During the quarter (of a financial year), buyers, in any case, are (there) in the market. They have been waiting for this period. So, I don't see an immediate impact. But, beyond a certain threshold, price increase can impact the industry and when it does, there can be some segmental shift here and there. But broadly, if somebody has thought of buying a vehicle, they generally go for it,” said Chandra, who is also the managing director of Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility (TPEM). 

The SIAM chief affirmed that the rural market will witness a massive resurgence due to strong monsoon, which will drive sales up for entry-level two wheelers. Entry-level cars, however, are likely to stay downhill despite being the least priced products.

"The trend suggests that you will see a recovery of the entry-level two-wheeler segment based on the rural demand. I cannot say the same for four wheelers, because a strong upgrade is happening in the industry as people are gravitating to higher price point cars. There is a structural shift in the four-wheeler industry and the average buying prices have increased also," Chandra said.

He acknowledged that there is a pressure, from the used car industry, on the entry-level car segment. “These are structural changes which seem to be happening because the used car industry has grown up to nearly 5 million plus (per annum), and the average selling price points are around ₹4.5 lakh to ₹5 lakh. So, pre-owned cars are directly competing with new entry-level cars in the industry.”

PV sales declined by 1.79% on a year over year during July-Sept of FY25, and PV sales during the first half of the fiscal increased at a marginal rate of 0.5%. Chandra sounded optimistic that rural demand could rebound with the good monsoon to stay in particular for entry-level two-wheelers.

The PV sales are expected to increase by less than 5% in FY25, according to Chandra while citing some of the months' market conditions, such as May and June, were not up to expectations.