Specialty chemical sector is the new investor darling thanks to a weak rupee & global demand

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Specialty chemical sector is the new investor darling thanks to a weak rupee & global demand
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  • While a weak rupee is a red flag for the economy, it is a good opportunity for such export- oriented companies.
  • Analysts and investors are betting on India’s specialty chemical sector, which is expected to benefit immensely from the current global conditions.
  • Moreover China Plus One’ strategy provides a $8 billion opportunity to the Indian speciality chemical companies.
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The Indian rupee’s consistent weakness against the US dollar has been rattling the markets and the wider economy. While export-oriented sectors like information technology and pharmaceuticals are the traditional beneficiaries of a weak rupee, this time around, there is another sector that has caught investors’ interest..

Analysts and investors are betting on India’s specialty chemical sector, which is expected to benefit immensely from the current global conditions. The Russia-Ukraine conflict and its fallout is seeing the demand for specialty chemicals shifting to India, and Indian companies are well-positioned to take advantage of this situation. The rupee’s slide is an added bonus.

Rising crude oil prices, interest rate hikes across central banks and the continuous outflow of liquidity from the market has dragged the rupee to its lowest at 79.37 against the US dollar. The misery doesn’t end here, as experts see the rupee weakening to as low as 82 against the greenback. While this is a red flag for the economy, it is a good opportunity for such export- oriented companies.

“A wide range of sectors which are dependent on export will benefit from this (rupee fall) - it will particularly help industries like software and textiles where the dependency on imported raw materials is limited. Speciality chemicals is the next emerging export sector within the country and even some export-oriented automobile companies are likely to benefit,” said Manoj Dalmia, founder and director at Proficient Equities.
Specialty chemicals stocks preferred by analysts Target price for 12-month
Aarti Industries₹1,000
Atul Limited₹11,000
NOCIL₹348
SRF₹2,800
Sudarshan Chemical₹550
Vinati Organics₹2,450
(source: Sharekhan Research)

Besides, some of the client demand is shifting from Europe to India as companies there are temporarily shutting down due to energy shortage.
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“Speciality chemicals should do well because stocks have corrected in the last 6-8 months and (also) because of energy shortage, especially gas in Europe. Hence, recently a lot of specialty chemical companies are either shutting down temporarily or working at a much lower capacity there. And so, India is turning out to be an emerging leader in this sector,” Ambareesh Baliga, an independent market analyst told Business Insider.

An $8-billion opportunity
India’s specialty chemicals sector is well poised to capitalise on global tailwinds and expand its global market share to 7-8% in the next few years from 4% currently, says a report by Sharekhan.

This is mainly due to the ‘China Plus One’ strategy, which is the business strategy to avoid investing only in China and diversify business into other countries. Thus, clients of Chinese companies are shifting their businesses to Indian markets.

“We remain bullish on the structural growth opportunity in the specialty chemicals in light of a solid demand environment and market share gains even in the midst of uncertainty arising from China,” said analysts at Edelweiss Research.

Since China constitutes about 20% of the global specialty chemical industry ($800 billion), even a 5% shift in market share from China to India can translate to an $8-billion opportunity for the Indian speciality chemical companies, says a report by Sharekhan.
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Players such as Galaxy Surfactants, Rossari and Fineotex Chemicals are seeing solid demand from user industries like textile, FMCG, etc, along with market share gains in the global market, says a report by Edelweiss.

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