Why Indian specialty chemicals sector is the new normal in investment domain?

India’s chemical industry is one of the fastest growing in the world. The Indian specialty chemicals manufacturing industry currently ranked at the 6th largest globally in terms of output after the US, China, Germany, Japan and Korea and 3rd largest in Asia. If someone will keenly observe the returns of the recent anomaly where the Indian benchmark has shoot up from the 24th March lows of 7,500 levels to a high of 11,700 and delivered 56% to the potential investors, one could easily bifurcate the returns derived from specialty chemical companies. The specialty chemicals manufacturing companies such as Aarti Industries, SRF, Deepak Nitrate, Galaxy Surfactants, JB Chemicals, Vinati Organics, Fine Organics and Sudarshan chemicals claims to make the investors who have invested in them rich as many of them have delivered more than 200% gains in a short span of time. Moreover, the recent listing of two specialty chemicals manufacturing based IPOs: Rossari Biotech and Chemcon specialty chemicals have seen massive response from the Dalal street and resulted into bumper listing. Some of the think tanks in the Indian market believe that investors have taken out the juice from these stocks and less room has left for them. However, the recent trend of easing dependency on single supplier, spur demand in the healthcare and wellness products and opportunities of outsourcing the domestic specialty chemicals to western companies is suggesting much room in the upcoming years.

Factors that will push the specialty chemical manufacturing companies

  1. Rising Domestic demand: India’s specialty chemical industry accounts for $70 billion and studies from various institutions believe that $100 billion valuation is not so far. The rationale of $100 billion valuation banks upon spur in the demand from the user end in various segments such as petrochemicals, agrochemicals, health and wellness products and textiles industry. The demand has been improved by smooth supply chains and upgrade of chemistry as these companies spend heavily on Research and Development (R&D)
  2. Lowering of dependency on single manufacturer: The recent crisis from Covid-19 have taught us that concentration of key input manufacturing at single location or country could dampen your production channel and arrest the productivity.Therefore, many Indian companies who rely upon specialty chemicals as their key input will increase the domestic demand.
  3. Cold trade war with Chinese economy: After the spread of Covid-19, many Asian countries have seen shifting their imports from China to other countries. This would energize the outsourcing of specialty chemicals and derive more clientage to Indian specialty chemical manufacturers. Moreover, the rising environment concerns and government policies taken by Chinese government will restrict their chemical output and make the Indian chemical industry most promising one.
  4. Strong entry barriers in the industry: The involvement of heavy expenditure upon R&D department, lengthy approval process and requirement of consistency in manufacturing chemicals acts as major barriers that restrict companies to enter into the industry. Moreover, the difficulty in client acquisition and customer stickiness towards the chemicals companies due to their customization will keep the revenues of these companies intact.

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