In today’s Finshots, we break down why Reliance is selling its stake in Asian Paints and whether India’s top paint brand is under pressure.

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The Story

So Reliance is cashing out of Asian Paints. After sitting on a 4.9% stake for 17 long years, it’s now walking away with a nearly 24x return with about ₹11,000 crore worth of proceeds. The sale will happen through a block deal, meaning one large investor sells to another. So it’s not like the stock will crash. But it might still face some price pressure, especially since the offers so far are coming in at around a 7% discount to the market price.

But what makes Reliance dump one of its longest-held investments and the segment leader in paints?

Let’s start with Asian Paints itself.

The company hasn’t had the best run lately. Its stock is down 30% from last year’s peak and it’s slowly losing market share.

Why?

Well, thanks to competition, the problem is twofold: pricing power is vanishing and demand is falling.

Let’s talk about pricing power. What goes into making paint? Well, there’s a chemical pigment called Titanium Dioxide (TiO2). It gives paint its characteristic solidity/opacity. And roughly 20% of the raw material could be attributed to TiO2 alone. However, TiO2 prices have been on the rise and it’s not been pleasant. Then we have crude oil. About 30–35% of the raw material cost could be attributed to products like solvents and additives that are derived from crude oil. And crude oil prices have been volatile too. And since over half of revenues are spent on raw materials alone, this kind of pressure can be damning.

Now, this trend has been evident for a few years. And due to this, Asian Paints and its peers went on raising prices heavily. But when input costs cooled, they were forced to cut prices, especially with new players breathing down their neck. So selling prices dropped and so did the revenues.

While raw material costs did ease this year as crude prices fell, the savings never reached the bottom line. Because Asian Paints had to spend more on advertising, dealer commissions and promotions to hold their market share. It’s even extending warranties. But in doing so, it’s taking a hit on profitability, with profits falling 45% from a year ago in the latest quarter (Q4FY25).

Its recent earnings call even described demand as “the worst in decades”, while admitting that competition was squeezing every lever.

No wonder Reliance wants out. It’s already made its money, and the road ahead looks tough.

But this isn’t just an Asian Paints problem. The whole paints industry is going through a shake-up of sorts.

Take Berger Paints, for instance. It’s taken the opposite approach by raising prices and focusing on premium products. That’s helped it gain share. Kansai Nerolac is leaning on industrial paints to make up for weak demand in the decorative segment.

And competition is heating up fast. JSW Paints is reportedly looking to buy Akzo Nobel India, which would give it a solid brand and a stronger foothold in urban markets. Then there’s Grasim’s Birla Opus, which is eating into Asian Paints market share.

You see, Birla Opus has grabbed nearly 7% of the market in a year. Dealers are being wooed with fat margins, ex-Asian Paints senior-level managers are running the show and massive factory setups have slashed supply-side advantages. Meanwhile, Asian Paints market share has dropped from 59% to 52% in just 12 months.

And Birla Opus is not done yet. It wants ₹10,000 crore topline over the next three years. That means Asian Paints will have to keep spending big on dealer incentives and marketing just to defend its market share.

Plus, all of this is happening while demand in the paints sector stays weak. The decorative paints business — Asian Paints’ bread and butter, depends on things like festivals, home renovations and weather cycles. But early Diwali and erratic monsoons disrupted this cycle. And since most people repaint every 3–5 years, there’s a natural limit to volume growth, unless you keep offering deep discounts.

Asian Paints admits as much in its earnings call…

While we have always seen competition in the market, we've had newer players like JSW and Indigo and so on and so forth which have come into the market. Yes, this year we've seen about 3-4 new other players which have come in the market. I would say that possibly to some extent in a market which is already slow, the intensity of competitive action has been much more as well. I think it is a double whammy in combination of the market slowing down plus increased competition coming from both the existing and then new players.

So how is Asian Paints responding to this mess?

Well, not by slashing prices blindly. Instead, it’s playing the long game to its strength and pushing for premiumisation as well as rural growth. Something that Birla Opus has been doing.

It’s expanding into adjacent categories like waterproofing, kitchen and bath fittings, home décor — which now contributes about 5% of decorative business revenues. It still has the largest distribution network in India with 1.7 lakh points, a strong product innovation pipeline and a deep understanding of Indian households.

As the management puts it…

It's not the question of just discounting. It's not a question of offering something very cheap. It's the value which counts. And therefore, we would continuously play on the value proposition very strongly as to what we want to offer, whether it’s economy, whether it’s premium or luxury.

The company also has good plans for expansion here apart from its B2B segment to rural areas...

...we are looking at any other airport, tunnels, bridges what are happening. That is something which we look at in terms of contributing to that extent. And we feel that is going to give us a good gain from our whole B2B business which is going to come up. … Second, we also see that the mid-to-luxury housing is going to flare up as we go ahead. We are already seeing second homes coming up in a very big way, this thing which basically gives flip to the premium and the luxury products in a very big way. And that is something which we see will go up. Third T3-T4 is a good indication while looking at some of the rural demand coming back.

But will that be enough and should the markets be worried?

Not necessarily. Unless you believed Asian Paints would always be a high-growth stock.

It’s still financially sound: a zero debt-to-equity, good return ratios and massive brand equity. But growth has slowed. And margins could stay under pressure. The competition is real. And that means investors may need to reset expectations, from hypergrowth to steady compounding. Maybe Reliance just didn’t want to wait around for that.

Nevertheless, India’s paint industry is growing. But with all the things we discussed, it seems that it’s not going to be a winner-takes-all game anymore. More players, more price cuts, more pressure. But all that might get a lot of investors and consumers to cheer.

Until then...

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