Asian Paints, Pidilite Ind: Trading strategies for paint stocks post Q2 nos

The overall trend in paints stocks is still bullish with mild profit-booking.

Paint companies have posted a decent set of numbers for the quarter ended September 2020 on the back of strong demand post un-lock and a strong pickup in decorative, automotive, and other industrial coatings business segments. For instance, Berger Paints on Thursday reported a 13.55 per cent year-on-year (YoY) rise in its consolidated net profit at Rs 221.05 crore for the quarter ended September 2020 while Pidilite Industries' profit rose 10 per cent YoY at Rs 356.42 crore. Asian Paints had posted a 1.16 per cent rise in net profit to Rs 851.9 crore on a 5.93 per cent increase in revenue from operations at Rs 5,350.23 crore in Q2 September 2020 over Q2 September 2019.

"We believe normalisation in metro regions, revival in the real estate industry and intact repainting demand from semi-urban, rural India would drive paint demand, going forward. Besides, we believe favourable raw material prices are likely to keep gross margins elevated in the coming quarters even with a change in product mix. This, coupled with rationalisation of other costs would help drive EBITDA margin for the paint companies, going forward," analysts at ICICI Securities said in a report issued on October 23. 

At the bourses, shares of these companies have risen up to 10 per cent since October 1.

So, what lies ahead? Is there more steam left or should one book profits at the current levels? 

Take a look at what charts indicate for key paint stocks. 

ASIAN PAINTS LTD (ASIANPAINT): The counter has surged nearly 16 per cent from the previous high in March 2020 of Rs 1,910 mark. This huge rally may take some rest before moving in the direction of Rs 2,500 levels. This may happen due to short term profit booking; however the overall trend stays highly bullish. The Relative Strength Index (RSI) is trading sideways in the value of 68 to 55. So, any breach may trigger the next rally in the direction of the RSI value. The immediate support comes in at Rs 2,160 levels. CLICK HERE FOR THE CHART

PIDILITE INDUSTRIES LTD (PIDILITIND):  This counter has not fallen below the 100-weekly moving average (WMA) in the last three years, currently placed at Rs 1,305 levels. This has become the strong support with which this counter is scaling higher highs. The counter is comfortably moving towards a new all-time high of Rs 1,637. A short term support comes in at Rs 1,580. The overall trend is heading towards Rs 1,800 till the counter defends Rs 1,500 levels, as per the daily chart. CLICK HERE FOR THE CHART
 
BERGER PAINTS INDIA (BERGEPAINT): After climbing a new record high of Rs 587 in September 2020, the stock price has surged nearly 15 per cent as of now. The momentum is not slowing down with stock entering the uncharted territory. The overall trend illustrates a move over Rs 750 levels with an immediate closing basis support of Rs 640 levels. The RSI has entered the overbought condition, suggesting the counter may witness a mild and healthy profit booking. CLICK HERE FOR THE CHART