With crude oil prices cooling off, has Asian Paints’ picture brightened?

The stock of ASIANPAINT soared over 2% on Wednesday. 

The crude oil has been on a downtrend in the past few days and has fallen from USD 120 per barrel to sub 100-levels. Such profit booking has come in the anticipation of growing recession fears. The slowdown of economic activity is likely to put crude oil demand on hold which shall ultimately have an impact on the price of crude oil. 

Interestingly, crude oil is a major raw material used in the production of Paints and emulsions. The paint companies are likely to benefit from falling raw material costs and shall have rosy operating margins. Also, the falling crude oil prices are likely to cool off local inflation to some extent, as India is the second-largest crude oil importer in the world. 

Thus, with falling crude oil prices, Asian Paints has attracted strong buying interest and has soared over 2% on Wednesday’s trading session. In the past few days, the stock has jumped over 10% from its prior swing low of Rs 2560 level. On the technical chart, the stock is seen rising above its prior swing high of Rs 2827 level and is already above its 20-DMA. The volumes have risen lately, indicating an increase in participation levels. With the global macros in favour of the stock, it is likely to benefit in times to come. 

As per the technical parameters, the strength of the stock is improving. The 14-period daily RSI (54.29) has crossed above its falling trendline and shows good strength. The +DMI is above its -DMI and ADX and indicates a bullish picture. The MACD line is consistently above the signal line and shows a good upside move. In a nutshell, the stock is likely to test higher levels. 

The stock has the potential to test the level of Rs 3000 in the short to medium term. However, keep an eye on the 20-DMA level of Rs 2700 as any fall below this level can induce weakness in the stock.