“Diversification is protection against ignorance, but if you don’t feel ignorant, the need for it goes down drastically.” - Warren Buffett
Chemical stocks find themselves where ITC was till about a couple of years back and have become the target of meme attacks on social media. These stocks have had a phenomenal run till 2021-22, but since then, most of them have been underperforming. Bulls of the sector believe chemical companies will benefit hugely from the China plus-one trend as buyers look to diversify their vendor base. But bears are equally convinced that as China’s economy weakens further, there will be more dumping of chemicals by Chinese firms in global markets.
The Indian chemical companies are slowly beginning to sound positive. Vinati Organics has said that inventory levels at clients’ end have come down significantly and volumes should start picking up from FY25. The business environment may be improving, but an upswing in stock prices could be gradual, warn market veterans.
That is because too many people still own chemical stocks and, given the long wait, it would be just a breakeven or a small profit to sell out. Besides, capex is underway in most companies because of which margins may not be as juicy as they were in the past. The long term looks promising no doubt, but it is the short term that could be tricky.
NBCC (India) (Rs 141.3, +4.98)
