The recent rally in paper stocks is driven by factors such as increased demand for packaging solutions, positive economic indicators, and proposed customs duty hike on imports. Companies like JK Paper and Orient Paper have recorded significant gains.
Paper stocks have emerged as some of the largest gainers in recent trading sessions, registering fresh milestones and leaving the market wondering about the reasons behind the sharp rally, as there were no sector updates and companies had not released any quarterly updates.
Shares of JK Paper have rallied 64% in a month, rising from ₹366 apiece to the current level of ₹601. Similarly, Orient Paper shares have surged 41% in a month. Other stocks, including West Coast Paper, Ruchira Paper, Kuantum Papers, Satia Industries, Emami Paper Mills, and Tamil Nadu Newsprint and Papers, have seen gains ranging from 21% to 29% in the same period.
The paper industry’s fortunes are closely tied to various economic indicators such as literacy rates, education spending, and sales of fast-moving consumer goods (FMCG). These indicators currently show positive momentum, boosting confidence in paper stocks.
There is increasing demand from sectors like FMCG and retail for innovative packaging solutions that reduce dependency on plastics. Paper stocks are also poised to benefit from the rise in e-commerce shopping and the growing popularity of ready-to-eat and packaged foods.
Additionally, the recent uptick in paper prices, anticipated strong earnings in Q1 FY25, and the paper association’s proposal to increase the basic customs duty (BCD) on paper and paperboard imports from 10% to 25% due to a 34% surge in imports in FY24 have all contributed to the positive sentiment in the market.
Divam Sharma, Founder and Fund Manager at Green Portfolio, said, “Most paper stocks have been doing well since the last month. The rally that we see now is largely because of an increase in raw material prices. Paper pulp prices went down last year but are now reviving. “
Earlier, volumes were also subdued, but now demand in the industry is reviving too. FMCG and e-commerce have a demand for packaging paper, and the new education policy for writing paper. So, he pointed out that demand pressure and hikes in raw material prices are major factors in this rally. He believes the growth of paper stocks will continue in FY25, as demand is expected to stay strong.
On the other hand, Sonam Srivastava, Founder and Fund Manager at Wright Research, said, “The recent surge in paper stocks can be attributed to a confluence of factors. Increased demand from reopening schools and offices, coupled with supply chain disruptions caused by mill closures in China, have created a favourable environment for paper companies.”
“Rising paper prices have boosted profitability, and positive earnings outlooks have attracted investor interest. However, the sustainability of this rally hinges on several factors. The long-term demand for paper could be impacted by a shift towards digitalization, and supply chain normalization or potential price corrections could also influence stock prices,” Sonam added.
She advised investors to closely monitor these developments and assess their risk tolerance before making any investment decisions.
Meanwhile, paper consumption in India will likely reach 30 million tons by March 2027, as per the IPMA estimates.
News Courtesy : Mint
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint or Paperdesk. We advise investors to check with certified experts before making any investment decisions.