Investing in these 3 chemical sector stocks can give good returns now as sector is reviving

Time of India

2 days ago

After a lull of about three years, India's chemicals sector now appears poised for an upgrade. If you are looking for a contrarian
investment strategy
, then you might want to take a small exposure to this sector. Here's why.
On a rebound
The sector saw a marginal but noticeable improvement in performance during the January–March 2025 quarter. While much of the gain can be attributed to the low base effect, analysts remain optimistic. Of the 32 companies tracked by Reuters-Refinitiv (with estimates from at least two analysts), 19—or 59.3%—beat net
profit expectations
for the quarter.
Anuj Jain, Co-founder of Green Portfolio PMS, says the March quarter results signal the beginning of an upcycle in the chemicals industry after a pause of nearly 2–3 years. Though valuations remain high for several large-cap stocks in the sector, many mid- and small-cap companies are still available at attractive valuations.
A bleak past
The chemicals sector has faced persistent headwinds over the past few quarters due to muted demand, weak realisations amid pricing pressures, inventory destocking in the agrochemicals segment, and heightened competition from China. Data compiled from the Reuters-Refinitiv database for 139 chemical companies with a market cap of more than Rs.100 crore shows dismal aggregate revenue growth of just 2% and 3.4% in the June and September quarters of 2024-25, on a year-on-year basis.
Nearly 54% of these companies underperformed the Nifty 500 index over the last year, while 66% lagged the broader market benchmark in 2025 year-to-date.
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Brokers upbeat, but wary
A pick-up in domestic demand for RACs (room air conditioners) and the sheer rise in demand for gas used in refrigeration and air conditioning is expected to bode well for the sector. While a B&K Securities report highlights that the weakening of competition from within the European Union will open up export opportunities for Indian companies, it also cautions against the continued threat of strong competition from China.
On the other hand, a gradual recovery is expected in the agrochemicals segment, supported by the rising demand for newer, innovative products and biological alternatives. A Motilal Oswal report released in March 2025 notes that prices in the global crop protection industry are likely to bottom out in 2025 across all key regions and product segments, paving the way for a more stable growth trajectory ahead.
The B&K Securities report notes that a sustained recovery in demand from the EU27 block is crucial to boosting the export growth potential of the Indian chemicals industry. It adds that with inventory de-stocking now largely complete in European markets, both demand and volumes are expected to drive growth going forward.
Challenges
The US trade tariffs, low-cost dumping by Chinese manufacturers, and weak demand in Europe remain some of the major concerns for the sector. An April 2025 Kotak Securities report expresses hope for a decent recovery over 2024–25 and 2026–27. However, in the event of a prolonged tariff war, it cautions that there could be more substantial downside risk to these expectations. Here are three companies worth considering for a small exposure. These firms have reported double-digit growth in net earnings for the March 2025 quarter and enjoy the highest level of analyst coverage within the sector.
SRF
Q4 revenue and net profit beat estimates by 7.4% and 9.3%.
Strong performance in specialty chemicals, refrigerant gases, and packaging films.
2025-26 revenue guidance at 20% growth.
Elara Capital maintains an 'accumulate' rating, expecting gains from recovering demand.
Navin Fluorine
Q4 revenue and EBITDA beat estimates by 2.4% and 7.9%.
CDMO (Contract Development and Manufacturing Organisation) and high-performance products drove growth.
Refrigerant gas demand and better pricing supported performance.
Management targets ~25% EBITDA margin in 2025-26.
Prabhudas Lilladher sees strong long-term growth potential.
UPL
Q4 revenue and EBITDA beat estimates by 3.6% and 9.9%.
Growth is driven by strong volumes, and inventory normalisation.
2025-26 revenue growth guided at 4-8%, led by volumes.
Recovery in key markets and new products to aid growth.
Antique sees balance sheet improving and growth momentum continuing.