A lot of new players have entered and exited in the past, but the efforts by incumbents this time around to protect their market shares seem to be much sharper in anticipation of emerging competition, it said.

The existing players have been building greater levers around larger capacity, deeper distribution networks, better branding propositions and stronger supply chains, according to Morgan Stanley.

India’s consumer sector has always enjoyed high valuations versus other sectors due to higher predictability in growth, profitability and cash flows, the financial services firm said. “This, in our view, is changing for the paint industry, and so we believe valuation compression is likely to continue.”

“This will be combined with earnings downgrades being an ongoing narrative for the sector. While the sell-side consensus is now negatively skewed on stock ratings, we believe it still needs lower margin assumptions. We are 7–12% below consensus earnings, led by lower margins,” it said.