With the sector in the midst of a rough patch, chemical companies are hoping that the Budget will have something to cheer in the form of production-linked incentive (PLI) scheme.
The industry has been hurting from a double whammy of weak demand and the influx of low-cost Chinese inventory in the global markets over the last year. A recovery appears to be sight, barring agrochemicals, where the outlook is still hazy. That apart, many analysts are forecasting that a rebound should start becoming visible as soon as the second half of this fiscal.
That said, the industry is betting on some support from the government to make the most of this revival.
Aside from expectations of continued support through the PLI scheme for chemicals, Axis Securities also anticipates other tax incentives introduced in chemical manufacturing hubs like Gujarat, poised to benefit multiple Indian chemical manufacturers.
In addition, analysts Mayank Maheshwari and Vivek Rajamani of Morgan Stanley also expect taxes on petrochemicals and incentives to grow green hydrogen and gas penetration in the country.
With the impending rise in demand for electric vehicles (EVs), Axis Securities also foresees the government providing additional PLI incentives to battery manufacturers and other companies involved in the electric power production and storage sector.
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On similar lines, Prabhudas Lilladher also hopes for the government to provide a roadmap for the manufacturing of renewables and higher blending of ethanol.
For the agrochemical sector, expectations are that custom duty on imports could be doubled to 20 percent on technical and to 30 percent on formulations. If this comes through, domestic producers of agrochemical will benefit. However, analysts at Nuvama see little chance of duty slabs being tinkered with.
The chemical industry was on an upswing till 2022 after which things started going downhill as global demand weakened and Chinese imports flooded international markets. This downcycle in the industry also coincided with a phase of capital expenditure that had been commissioned by most players in the domestic chemical sector, putting margins under severe pressure.
As a result, most brokerages have taken a cautious stance on the sector as of now. Several chemical stocks, such as SRF, Deepak Nitrite, Gujarat Fluorochemicals, Neogen Chemicals, PI Industries, and Himadri Specialty Chemicals, have also registered losses year-to-date.
Regardless, some green shoots of recovery have started showing signs, with a full-blown bounceback of demand expected to make its way later this fiscal. In such a situation, support from the government through PLI schemes, especially as the industry moves towards a demand revival, will be crucial in lifting sentiment for the sector.
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