The chemical sector is set for another strong quarter, but not because consumers are buying more. It’s a supply story. Meet Vora, Chemical Research Analyst at JM Financial Institutional Securities, points to persistent disruptions in China and West Asia as the primary engine lifting realisations for Indian producers. "In demand, we are not seeing very major improvement. But this is all supply-led," Vora noted, highlighting that raw material shortages in India during Q1 and Q2, coupled with erratic Chinese supply, have kept prices high.
The disruption in China is specific and significant. Authorities have tightened environmental and safety regulations, particularly targeting nitration plants in Shandong. This region accounts for a large chunk of China's nitration capacity. Smaller players unable to meet the new compliance standards face shutdowns. For Indian companies like Aarti Industries, this means less competition and better pricing power. Vora sees this as a direct benefit for firms focused on domestic import substitution, where supply gaps are most acute.
Among the top picks, Navin Fluorine stands out. The continuation of India's anti-dumping duty on R32 and tighter Chinese export quotas are supporting refrigerant prices. Vora expects the company's CDMO business to ramp up in the second half, adding another layer of growth. Deepak Nitrite is also in the fold, benefiting from wider spreads in phenol and acetone, especially with domestic inventories running low.
Not all segments are enjoying the same tailwinds. SRF is expected to deliver 18-20% growth in its full chemical business, in line with guidance, driven by refrigerant gases and packaging films. However, its specialty segment remains muted due to raw material inflation and limited revenue growth. PI Industries, on the other hand, faces headwinds. Vora is cautious here, citing ongoing pressure in its contract development and manufacturing business, with potential margin hits from pricing issues in key products.