Paint stocks' valuations dicey, investors should await better entry point

Gains from expected business recovery and benign input costs already priced in Asian Paints and Berger Paints' scrips

The stocks of Asian Paints and Berger Paints have gained around 7 per cent each so far in September, outperforming the 0.6 per cent rise in the leading market indices such as the BSE Sensex. Improvement in earnings visibility, led by business recovery and benign input costs, driving investor sentiment towards them. However, analysts do not see valuation comfort in the stocks of paints companies, including Kansai Nerolac, which has a higher share of automotive paints.

On a one-year forward basis, Asian Paints and Berger Paints are currently trading at a whopping 40-55 per cent premium to their historical 5-year mean.