Have Chemical Industries Landed To Bear Territory? - Lakewater Advisors
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Have Chemical Industries Landed To Bear Territory?

Until recently, Chemical industries were booming amidst other sectors in the market. However, this belief is beginning to distort. This can be reflected from the fall of chemical industries’ stock from multi-bagger to bear territory. Companies such as Valiant Organics, Balaji Amines, DCW, Sigachi Industries, Laxmi Organic Industries, Alkyl Amines Chemicals, Oriental Aromatics, IG Petrochemicals, Deepak Nitrite, Navin Fluorine are among had hit 20% low from the 52-week high.

Wondering Why Chemical Industries-Oriented Stocks Are Falling?

The last 3 years was favourable period for the Indian Chemical Industry. Be it decline in Chinese manufacturers or healthy global chemical prices, all worked in favour of this sector. However, the winds aren’t on the same path now. The rises in the prices were due to an increase demand in pharma and blocked supply routes. As the supply routes are easing, the demand-supply dynamic is being maintained, hence bringing in the correction in the prices of the chemical.

Another important factor is the current energy crises in China. Globally, China is one of the biggest chemical producers, and significant imports of several necessary chemicals are dependent on China. The current energy crises in China have led to production disturbance. This crisis has impacted the Indian Chemical Industries, and thereby, there is pressure on the stocks too.

Most of the chemical stocks were overbought, with very narrow safety margins. Hence, a small news is creating an impact. For instance, Navin Fluorine’s disappointing Q2FY22 results led to anticipation that other chemical businesses may report disappointing second-quarter results too. So, people dumped their holdings in large quantities in panic and booked chemical firms’ profits ahead of their earnings announcements. Not to miss, the new covid variants have added to the market volatility.

Future Of Chemical Industry In India:

Despite the current situation, the Indian chemical industries have many opportunities. The Indian chemicals industry stood at US $178 billion in 2019 and is expected to reach US $300 billion by 2025.

> The agrochemicals market in India is expected to grow at 8% CAGR reaching $3.7 billion by FY 22 and $4.7 billion by FY25

> The specialty chemicals constitute 22% of India’s total chemicals and petrochemicals market. The demand is expected to rise at 12% CAGR by 2022.

> The petrochemical demand is expected to grow at 7.5% CAGR from FY 2019-23, with polymer demand growing 8 %.

India is an attractive hub for chemical companies. While the short-term performance is challenging, the country’s long-term growth story remains positive. Sooner or later, the market will recover and boom again in the long-term considering the plans of the Indian government