Specialty Chemical Stocks on a Roll, But Analysts Warn of Hefty Valuations
Shares of companies like Aarti Industries, Fine Organic Industries, Galaxy Surfactants, PI Industries and SRF are trading near their all-time highs.
Image for representation only.
Stocks of specialty chemical companies in India are on a roll this year as Indian manufacturers are filling in the global supply shortage due to shutdowns in China.
The top five specialty companies by market capitalization have gained over 50% since June last year, compared to 12% upside seen by the benchmark Sensex, according to a report.
Specialty chemicals are used in a variety of products including detergents, pet foods, soaps and cosmetics. The Chinese regulators last year cracked down heavily on low-cost chemicals producers who flouted environmental norms, leading to a dramatic drop in production and, hence, a sharp rise in prices in the global market.
In addition to that, trade disputes and anti-dumping duty by the US on Chinese imports have worsened the situation. This has provided the much-needed tailwinds to the Indian specialty chemicals producers.
Consequently, shares of companies like Aarti Industries, Fine Organic Industries, Galaxy Surfactants, PI Industries and SRF are trading near their all-time highs.
However, brokerage houses are increasingly turning cautious about the valuations of these companies after the recent run-up in stock prices. Experts believe that markets haven’t adequately factored in risks inherent to the chemicals industry.
Analysts also fear that any further tightening in India’s environmental norms may sharply reverse the stock price trends of these companies.
Rohan Gupta and Sneha Talreja, Mumbai-based analysts at Edelweiss Securities Ltd, said in a report: “Though structurally positive on the sector, we remain cognizant of its frothy valuations and await a better price opportunity.”
Value of India’s specialty chemicals sector is likely to rise almost two-and-a-half times to $87 billion by March 2025, driven by robust 10-15% growth in end-user industries and emerging export opportunities to the West and the China clampdown, the analysts said.
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