Market litmus may turn red for chemicals sector

Further downgrades on the cards as lukewarm demand may weigh on Q3 showing

- RAM PRASAD SAHU

The chemicals recovery could be until FY25 if the current sector's delayed trends of weak demand and flat pricing continue. Following a subdued September quarter, the revenue and profit performance of listed chemicals companies are anticipated to fall short of initial expectations of an improvement.

Despite some price stability, the demand trajectory remains uncertain. A disappointing Q3 and ongoing demand issues could lead to further downgrades for companies in the sector.

Specialty chemical majors, after a 17 per cent year-on-year fall in revenues in the September quarter, are expected to report an 18 per cent drop in the top line in the December quarter. The combination of weaker volumes and margin pressure could result in a 34 per cent decrease in operating profit and a 45 per cent decline in net profit. Swarnendu Bhushan of Prabhudas Lilladher Research suggests that while destocking seems to be broadly over, demand remains elusive, raising the possibility of more severe earnings cuts for chemical companies, at least for another year.