Asian Paints has released quarterly results, shedding light on how inflation affects their performance.

The News

Last week, Asian Paints’ shares fell over 10% after it announced its July-September quarterly results. Profitability took a hit because of three key challenges: weak demand, rising material costs, and a slump in the domestic decorative and coatings segment.

Why are we discussing ‌Asian Paints today? Well, it is the largest paint company in India and numbers published by this company indicate macro trends in the industry and economy. Let’s decode them.

What does it indicate?

The paint industry plays a significant role in the economy. It mirrors the economy’s overall health. When people invest in home improvements like painting, it often signals financial confidence. On the flip side, delaying such expenses can reflect caution or uncertainty about the future.

Apart from the paint industry, India’s corporate earnings were underwhelming. The Nifty 50 companies reported a modest 4% year-on-year (YoY) growth in net profits after tax (PAT).

What might be driving the slowdown?

Inflation is one of the key factors driving down demand. India’s inflation has risen to a 14-month high at 6.21% in October, pushing up prices of raw materials and reducing the profit margins of companies.

India’s food inflation, which makes up nearly half of the consumption basket, climbed to 10.87% in October 2024 from 9.24% in September.

For many, inflation might seem like a distant worry, but for those at the bottom of the income pyramid, it’s a daily struggle that hits hardest.

And companies often pass this increased cost to consumers by increasing the price of their products or services. Which again contributes to less demand from consumers, creating a vicious cycle.

To conclude

This phase calls for a closer look at sectors resilient to inflation and shifting consumer behaviors.

So is it a signal that the economy might be entering a slowdown phase or just a short term? We will have to wait and see.