Shares of specialty chemical companies experienced a significant rally today, following a positive report from Morgan Stanley. The report highlighted growth potential in select stocks with diversified portfolios and organic volume strategies, leading to an investment shift from agrochemicals to new markets like clean energy by 2024.
The shares of Aarti Industries and Deepak Nitrate surged by 11% and 6%, respectively, while other firms including SRF, Navin Fluorine, Clean Science, Neogen (NASDAQ:NEOG) Chemicals PCBL registered gains of over 3%. SRF and Aarti Industries were upgraded to overweight as their earnings are projected to bottom in H1 2024.
However, it wasn't all positive news. Navin Fluorine was downgraded to equal weight and PI Industries received a double downgrade. The Indian specialty chemical sector has seen a significant drop from their FY23 peaks after two years of high earnings. This year, they have trailed the Nifty index by 12-15 percentage points due to rising global interest rates and oversupply.
Despite the sector's underperformance this year, analysts from Geojit Financial Services foresee long-term benefits for Indian chemical companies due to robust domestic demand, global production diversification, and high-growth sectors.
On the downside, street estimates predict a 10-20% drop in year-on-year profits for the September 2023 quarter. The EPS of several companies including PI Industries has been downgraded in the last three months. Despite these challenges, stocks such as Aarti Industries, Atul, Gujarat Fluorochemicals, Fine Organic Industries, Sumitomo Chemical have fallen between 10-25% this year.
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