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India's chemical industry is poised for an era of strong growth

Indian Chemical Industry - Highlights

With China slowly and steadily making an exit due to environmental concerns, India is likely to become a dominant supplier to the world.

Since 2014 Indian chemical companies’ financial performance has improved drastically, simultaneously attaining a ‘reliable’ supplier status among MNCs and foreign customers.

Over the last decade, the core of the chemical industry has shifted from the West to Asia, with India being the key benefactor after China’s change in environmental policies on the companies. Manufacturers in the Asian region enjoy low labour costs, relatively relaxed environmental norms, and government subsidies.

Indian Chemical Industry to Unleash Growth - Reasons

While global scenario is uncertain, there are great near-term opportunities in India. The key reasons are –

  • Raw material problem to be solved - Several global oil and gas majors are turning their sights on downstream chemical opportunities. This may increase the focus on petrochemicals in India, and higher investment in the sector could ease feedstock challenges and boost self-sufficiency.
  • Shift from China to India - The China’s chemical industry is changing due to stricter environmental norms, tighter financing, and consolidation. While these shifts may benefit select large players in the long run, they could cause uncertainty for international players that source chemicals from China. That could create opportunities for India’s chemical companies.
  • Buyers want to reduce supplier risk - Trade conflicts have erupted around the world, especially among China, the United States, and Western Europe. These have led to shifts in global supply chains, affecting bilateral trade between China and the United States. Large chemical markets that remain accessible in this scenario could present big opportunities for chemical companies in India.
  • Big domestic market – In addition to rising exports, Indian chemical industry has a large domestic market. The end user industries textiles, FMCG, construction, pharma, paints, and agro chemicals are going to see strong recovery post Covid.
  • Boost from pharma - Specialty chemical firms, which were eyeing the intermediates business for the past few years, received a boost from the pandemic and the focus on localizing pharmaceutical supply chains. Pharma sector is going to be the next growth opportunity.
  • Low petrochemical penetration - Petrochemicals are used widely in agriculture, infrastructure, healthcare, textiles, and consumer durables. India’s low per capita consumption of most petrochemicals, compared to global averages, points to the growth possibilities that will arise as the country becomes more prosperous (Figure 1).

fig 04

Figure 1: India’s per capita petrochemical consumption is lower than global averages and will likely grow as the country prospers.

The Best Stock in Chemical Industry

We have selected an established leader that is expanding its capacity, is focusing on pharma, has established export market, has professional management, and has excellent profitability.

The chemical industry is not going to be much affected by Covid and this stock is available at attractive valuations.

   

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