The chemical sector has created impressive wealth for the investors in the last five years as most of the stocks have turned multifold but there is a concern about valuations in many counters
Speciality chemicals manufacturers have been in focus for a while now, with rising demand and realisations. With Indian markets hitting new record high levels, specialty chemical stocks have outperformed and continued their bull run by giving multibagger returns this year as the companies have seen significant improvement in profitability and earnings over the last one year.
The sharp upmove can be attributed to the improved outlook and the fact that covid pandemic has accelerated the shift away from China to other countries. “We are seeing most if not all companies that we monitor in the industry expanding capacity and signalling a demand uptick from customers who were earlier procuring from China," said Sreeram Ramdas, Analyst, Green Portfolio, SEBI Regd. Portfolio Management services.
These global chemical players have now recognised the need to diversify away from China and the manufacturing competitiveness that India provides. "With these tailwinds, we expect the industry to expand at a 12% CAGR until FY2027, and the related stocks to hold up the rally. He further predicts that Exemplary businesses like Transpek Industries and Valiant Organics will be the key beneficiaries moving forward," Ramdas added.
The chemical sector has created impressive wealth for the investors in the last five years as most of the stocks have turned multifold but there is a concern about valuations in many counters.
“Opportunities will be multifold over the next five years driven by an increase in outsourcing and divestments in the developed world due to rising cost pressure, better availability of feedstock, and import substitution. This will lead to a meaningful increase in India's share in global chemicals while but the sector can see some volatility depending on how the pricing environment moves. Investors should remain selective now because most of the companies will not be able to enjoy the current level of growth and margin," said Santosh Meena, Head of Research, Swastika Investmart Ltd.
Deepak Nitrite remains his preferred bet despite a sharp run because growth visibility is there with some comfort in valuations. Meena also expects SRF, Aarti Industries, and PI Industries to continue to do well.
Analysts are bullish on the sector as they expect India’s share in the specialty chemicals to double over the next five years with its well established chemical industry that has a significant advantage over other countries and has been the biggest beneficiary of the shift in global supply chain from China
Despite the up move and expensive valuations relative to historical average, Jyoti Roy, Equity Strategist,Angel Broking continues to remain positive on the chemical sector given strong growth prospects for the Industry over the next 3-5 years.