Asian Paints' stock falls more than 7% today. Why?

25 May 2022 , 03:06 PM

Asian Paints’ stock has fallen by around 7% today. This decline has happened because of the announcement yesterday by Grasim that it will be increasing its capital expenditure in its paint business by around 10,000 crores over the next 2-3 years. Grasim is increasing this capital expenditure for increasing its production capacity. Grasim is an Aditya Birla Group company. It entered the paint business only in 2021.

Being part of Aditya Birla Group, Grasim is a company with deep pockets. Its entry and focus on the paints business will increase competition in the industry.  Asian Paints has currently almost 50% market share in the Indian paints market. With this increased capital expenditure by Grasim, there is a high probability that the market share of Asian paints will come down over the next few years. This expectation has caused the market price of Asian Paints to go down.

The move by Grasim also is an indicator of Aditya Birla Group’s strategy to identify industries where competition is less and enter those industries.

At its current price of around Rs 2843.40 per share, Asian Paints is now trading at much below its 52 week high price of Rs 3590.  So some investors will also consider it a good time to buy the Asian Paint stock.