India can become another source of a chemical manufacturing hub

Specialty chemicals was one of the best performing industries in 2020, although most other key industries were the first to bear the brunt of the market sell-off triggered by covid-19. As we all know, this is a safe bet, it has achieved double-digit returns over the past five years and is expected to increase demand in the future.

In a recent report, ICICI direct said the size of India’s chemical industry is expected to reach US $300 billion in fiscal 2015, with a compound annual growth rate of 9%.

India’s specialty chemical industry is also expected to achieve double-digit growth, the report added. The industry is currently worth $32 billion and is expected to reach $65 billion by fiscal year 25, the company said.

The report points out that the growth of domestic specialty chemical industry will be mainly met by agricultural chemicals, surfactants, aromatic chemicals, plastic additives, water treatment chemicals and other sub sectors.

In addition, it estimates that, with China accounting for 20% (US $800 billion) of the global specialty chemicals industry, even a 5% shift in China’s market share to India will bring us $8 billion opportunities for Indian specialty chemicals companies.

“Repeated factory explosions and the closure of many chemical plants in key provinces of China have affected the supply chain of many global enterprises. This has led many participants to seek secondary resources, which we believe may be beneficial to India, Vietnam, South Korea and other countries.

The company believes that this will make India an attractive destination for many global / domestic companies to expand as a result of the government’s reduction of corporate tax on newly merged companies this year.

In addition, the production costs of Chinese chemical enterprises have also increased, which is mainly due to the rising cost of pollution control and meeting the environmental protection standards, which has narrowed the cost gap between Indian and Chinese enterprises to a certain extent. As a result, India can be another source of chemical manufacturing centers, further explained by ICICI.

Looking ahead, the broker expects that the announcement of the pharmaceutical API Park, as well as the concerns of many domestic companies, will offset any vulnerability in raw materials, which may indicate a good future for the specialty chemicals portfolio.

This should translate into an increase in OEM from India, where, as many Indian chemical companies have seen, they are gaining momentum in this area.

Credit and Investment Bank of India believes that some small chemical companies in India are likely to enter the orbit of medium-sized stocks, and medium-sized stocks are likely to turn into large-scale stocks in the medium and long-term.