One of the sectors that emerged strongly in terms of earnings growth as well as an investment theme on Dalal Street has been specialty chemicals.
However, the volatility in equity markets this year, triggered by the hawkish monetary policy measures by central banks amid spiralling inflation have seen stocks in this space lose some sheen.
11 stocks have seen a double-digit correction from their 52-week highs, tested earlier this year.
The correction in stocks have come even as companies have reported strong growth in earnings in the last two quarters, weathering the spike in raw material prices.
Companies across the board have reported high double-digit growth in the topline in the last two quarters, and most of them managed a double-digit growth even in the bottomline.
“We think a lot of Indian companies now have the size, and balance sheet, and have been doing a lot of work in improving their product mix towards more specialised products,” said
Arpit Agrawal, co-founder of the PMS arm of
.
Given that companies are on track to complete most of their existing expansion plans in FY24 even as they have lined up new capex for future growth, offers robust outlook for growth,
Securities said in its report.
The speciality chemicals industry evolved significantly over the past 3-4 years and new opportunities emerged due to China+1 and Europe+1 strategies playing out globally.
Increased restrictions in China due to environmental concerns and closure of several units across the country opened up opportunities for Indian companies. Further, the challenges in Europe amid the war between Ukraine and Russia has added to the opportunities for the companies.
“The underlying demand continues to be very strong for a company like SRF or
or even ..you will continue to have revenue positive surprises in the coming quarter,” Chakri Lokapriya, managing director and chief investment officer at TCG AMC told in a conversation with ET Now.
What should investors do?
Given that the long-term growth potential for the sector remains buoyant, analysts recommend staying invested in the sector and using the dip to add quality stocks.
Lokapriya thinks it is worth buying back into these stocks as their earnings have been upgraded for both FY23 and FY24.
is a strong bet for Motilal Oswal in the specialty chemicals space.
“Demand for the products remains strong and the management expects 2HFY23 to be strong too. We are positive on the growth prospects of the company and Vinati Organics remains a high conviction idea for us,” it said in its report.
Chemicals is among the top five most invested sector for several mutual funds. In October, Kotak Mutual Fund bought Tata Chemicals’ shares worth Rs 475 crore. DSP Mutual Fund also has a significant exposure to the sector, with an over 9% weight.
So, the message out on the street for the sector is “down, but not out”. One would see the chemical reaction yielding positive results soon!
(With data inputs from Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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