Chemical Industry Analysis | Top 10 Chemical Stocks For Future

Introduction

The chemical industry in India has witnessed a unique trajectory in the last couple of years, standing apart from booming sectors like IT, Pharma, Midcaps, metals, and FMCG. While these sectors touch new highs, the chemical industry has faced a downturn, with major stocks showing consistent performance declines over the past two years.

 

Understanding the Recent Performance

Let's delve into the returns of some major chemical stocks from December 2021 to December 2023:

• Deepak Nitrite – 3%

• Navin Fluorine – -10%

• Laxmi Organics – -33%

• Aarti Industries – -29.7%

• Tata Chemicals – 16.1%

• Balaji Amines – -27.9%

(Source: TradingView)

Comparing these returns with the period before 2021, we observe a stark contrast in the market dynamics. Technical analysis reveals significant returns for several stocks during the last two years.

 

Detailed Video

 

Factors Influencing the Downturn

Several factors contribute to the recent challenges faced by the chemical industry:

• During the COVID-19 pandemic, Indian chemical companies experienced a sharp demand increase due to supply chain disruptions in China, leading to the closure of numerous chemical industries. This resulted in a rally post-2019.

• Global demand for chemicals slowed down after 2021, impacting revenue growth for companies and subsequently affecting stock prices.

• The initial boost in chemical companies' margins during the COVID-19 period, thanks to low-cost raw materials, has been countered by the recent global inflation, leading to increased raw material costs and reduced profit margins.

• The Russia-Ukraine war led to a surge in crude oil prices, affecting chemical companies that use crude oil derivatives in their processes.

 

Understanding the Indian Chemical Industry

Before diving into the government's initiatives and potential opportunities, let's grasp the significance of the Indian Chemical Industry:

• Highly diversified, covering over 80,000 products.

• India ranks 3rd in polymer consumption, 4th in agrochemical production, and 6th in overall chemical production globally.

• Contributes 7% to India's GDP.

• Estimated to reach $300 billion by 2025 and $1 trillion by 2040, indicating tremendous growth.

(Source: IBEF)

 

 

Government Initiatives and Opportunities

The Indian government has outlined several initiatives to boost the chemical sector:

• Allocated $20.93 million in the 2023-24 budget to the Department of Chemicals and Petrochemicals.

• Set a vision for 2034 to improve domestic production, reduce imports, and attract investments.

• Allowed 100% FDI in the chemical sector.

• Approved the National Medical Devices Policy in April 2023.

• Established four PCPIRs (Petroleum, Chemicals, and Petrochemical Investment Regions).

• Launched a Production Linked Incentive (PLI) scheme to boost domestic manufacturing and exports.

• Permitted 100% FDI in chemicals, with an expected investment of $107.38 billion by 2025.

 

Stock Picks for the Future

Considering the government's plans and FDI involvement, certain stocks may benefit from the industry's potential growth. Here are some key players:

• Deepak Nitrite

• Navin Fluorine

• Pidilite Industries

• Tata Chemicals Ltd.

• UPL

• Reliance Industries

Additionally, focus on stocks with favorable valuations and strong growth:

• Fineotex Chemicals

• GHCL Ltd

• Deepak Nitrite

• Tata Chemicals

• Fine Organic Industries

 

 

Conclusion

Analyzing these stocks and industry trends can help investors make informed decisions. The chemical industry's future growth, coupled with government initiatives and global demand, presents opportunities for those looking to capitalize on this sector. Always conduct thorough research and consider consulting financial experts before making investment decisions.

 

Disclaimer:

Please note that this blog is not a recommendation for buying or selling any stock. We encourage readers to conduct thorough research, consider their risk tolerance, and consult with financial advisors before making investment decisions.